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Encana Annual report - 2010

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Encana Annual report - 2010 Powered By Docstoc
					                                                    h


take a
closer
lo k
                           h




                                            h



                                c                       we’re a high-performance
                                                        company driven by
                     h




                                    h                   a culture of innovation




                                                               h                       h




             h                                  h

 a vision for growing                                         the common sense
 shareholder value / 12                                       clean and affordable
                                                              alternative / 31

 answering the tough
 questions q & a with                                         enhancing sKills and
 sherri Brillon / 18                                            c
                                                              improving economies / 39


 pioneering a model                                           oUr commitment
 where innovation and                                         to responsible
 efficiency meet / 22                                         development / 42

                                                                                              /10




encana corporation       vol / two issUe / one
annual report 2010       www.encana.com

                                                                           TSX: ECA - NYSE: ECA
 TAKE A CLOSER LOOK AT OUR                                                                                                                                                             TAKE A CLOSER LOOK AT THE
RESOURCE POTENTIAL                                                                                                                                                                    BENEFITS OF NATURAL GAS




14.3
TCFE TOTAL PROVED RESERVES
                                                   $
                                                         4.05
                                                   MCF 2010 CORPORATE AVERAGE
                                                                                                                                                                                      65% 100
                                                                                                                                                                                      LESS CO2 EMISSIONS THAN COAL                   YEARS OF CURRENT SUPPLY IN NORTH


                                                                                                   We are rising to the challenge of sustaining
                                                   SUPPLY COST *                                                                                                                      PER KILOWATT HOUR                              AMERICA AT CURRENT CONSUMPTION RATES

OPPORTUNITY- RICH
                                                   LOW-COST FOCUS                                                                                                                     THE CLEANEST-                                  AN ABUNDANT
•	 	ncreased	total	proved	reserves	
   i
   by 12 percent from 2009                            g
                                                   •	 	 oal	to	lower	supply	cost	to	               our business success and increasing                                                BURNING FOSSIL FUEL                            RESOURCE
                                                      approximately	$3	per	Mcf	over	the	                                                                                                 2
                                                                                                                                                                                      •	 	 5	percent	less	CO2 emissions                 a
                                                                                                                                                                                                                                     •	 	 	secure,	made-in-North	America	
•	 	 dditional	20.0	Tcfe	1C	
   a
   (low	estimate)	economic	                           next	3	to	5	years                            the value of every Encana share in a low                                              than oil                                       energy solution


                                                                                                   natural gas price environment through
   contingent	resources                            •	 	 aximizing	operational	efficiencies	
                                                      m                                                                                                                                  p
                                                                                                                                                                                      •	 	 articulates	from	combustion	
                                                      and	cost	savings	achieved	through	                                                                                                 90 percent lower than oil and
   1
•	 	 1.7	million	total	net	acres

                                                                                                                                                                                                                                     REDUCED	
                                                      resource	play	hub	approach                                                                                                         99 percent lower than coal
•	 	 ver	20	years	of	drilling	
   o
   opportunities                                      c
                                                   •	 	 ontinual	assessment	and	high-              capital discipline, risk management and


                                                                                                                                                                                      1/3
                                                      grade	of	asset	portfolio	through
                                                                                                   by applying technology, efficiency and                                                                                            EMISSIONS
37,000
                                                      acquisition	and	divestiture	program


                                                                                                   innovation to our resource play hub
                                                      l
                                                   •	 	everaging	third-party	capital	to	
                                                                                                                                                                                                                                     BY CONVERTING LARGE TRUCKING FLEETS
                                                      lower	our	costs,	increase	capital	
                                                                                                                                                                                                                                     TO NATURAL GAS
                                                      efficiencies	and	bring	forth	value	
NET DRILLING LOCATIONS (BEST ESTIMATE)                recognition	sooner	through	                  production model.                                                                                                                 FUELING A TRANSPORT
                                                      increased	development	activity                                                                                                  LESS EXPENSIVE THAN GASOLINE
•	 large	geographically-diverse,	
                                                                                                                                                                                      AT THE PUMP
                                                                                                                                                                                                                                     PARADIGM
	 high-quality	portfolio	of	                                                                                                                                                                                                            C
                                                                                                                                                                                                                                     •	 	 anadian	federal	report	recommends	
                                                                                                   With our enormous resource potential in many of North America’s most prolific



                                                   TEN
	 resource	plays                                                                                                                                                                      AFFORDABLE                                        expanded	natural	gas	use	
•	 pursuing	additional	value	and		                                                                 natural gas resource plays, we will continue to grow the reserves and productive   NATURAL GAS                                       across medium- and heavy-duty
	 enhanced	project	returns	from		                                                                  capacity of our diverse and abundant portfolio of opportunities.                   •	 	 5	to	30	percent	less	expensive	
                                                                                                                                                                                         1                                              transportation sectors
	 liquids-rich	production                                                                                                                                                                than diesel                                    C
                                                                                                                                                                                                                                     •	 	 olorado	state	grants	supporting	
                                                                                                   Our goal is to be the highest-growth, lowest-cost senior natural gas producer                                                        infrastructure to accelerate market
                                                   NATURAL GAS-POWERED DRILLING
                                                                                                   in North America. By accelerating production growth from our high-quality,                                                           for compressed natural gas




                                                                                                                                                                                           450 2024
                                                   RIGS DEPLOYED
CAPITAL DISCIPLINE

                                                                                                                                                                                      $
                                                                                                   low-cost resource base, establishing joint venture investments and building
   s
•	 	 trong	investment	grade	                       CULTURE OF INNOVATION
   credit	rating
                                                                                                   demand for natural gas, we are pursuing the greatest value proposition
                                                      m
                                                   •	 	 ulti-discipline,	knowledge-sharing	        for our shareholders.
   h
•	 	 ealthy	balance	sheet,	with	debt	
                                                      teams	refining	resource	play	hubs	
   to	capitalization	at	less	than	
                                                      across	key	and	emerging	plays                I invite you to take a closer look.
   40	percent	and	a	debt	to	adjusted	                                                                                                                                                 BILLION VALUE ADDED TO CANADIAN
   EBITDA	at	less	than	2.0x                           p
                                                   •	 	 ioneered	use	of	cost-saving	                                                                                                  AND U.S. ECONOMIES*
                                                      fit-for-purpose	drilling	equipment
   a
•	 	 pproximately	one-half	of	2011	                                                                                                                                                   A DOMESTIC RESOURCE                            THE YEAR NATURAL GAS IS FORECAST TO BE

   daily	production	hedged	to	provide	                s
                                                   •	 	 trategic	pad	site	design	for	                                                                                                                                                THE LEADING SOURCE OF ENERGY (ALBERTA
                                                                                                                                                                                         u
                                                                                                                                                                                      •	 	 p	to	35,000	jobs	created	with	every	
   greater	cash	flow	certainty                        concurrent	drilling,	completion,	            Randy Eresman                                                                                                                     ELECTRIC INDUSTRY MARKET STUDY)
                                                                                                                                                                                         1 percent increase in North American
                                                      production	and	midstream	                    President	&	CEO
                                                                                                                                                                                         natural gas production
                                                      operations                                   Encana Corporation                                                                                                                CLEAN ENERGY FOR THE
                                                                                                                                                                                         e
                                                                                                                                                                                      •	 	 stimated	$160	billion	improvement	        POWER INDUSTRY
                                                      c
                                                   •	 	 ommenced	construction	on	five	
                                                                                                                                                                                         in foreign trade balance if natural gas
                                                      natural	gas	fueling	stations                                                                                                                                                      C
                                                                                                                                                                                                                                     •	 	 olorado	legislation	designed	to	
                                                                                                                                                                                         displaces foreign oil for transportation
                                                                                                                                                                                                                                        replace coal with natural gas in
                                                                                                                                                                                                                                        aging generation units




                                                                                                                                                                                       I
                                                                                                                                                                                      *	HS	Global	Insight:	September	2009	–	The	Contributions	of	the	Natural	Gas	Industry	to	the	
 S
*	 upply	cost	is	defined	as	the	flat	NYMEX	natural	gas	price	that	yields	a	risked	internal	rate	                                                                                      U.S.	National	and	State	Economies;	February	2010	–	The	Contributions	of	the	Natural	Gas	
of	return	of	9	percent	after	tax:	does	not	include	land	costs.                                                                                                                        Industry	to	the	Canadian	National	and	Provincial	Economies
                                                           a vision for growing
                                                           shareholder value / 12


                                                           answering the tough
                                                           questions q & a with
                                                           sherri Brillon / 18
Being a good neighbour in the communities where we work            responding to feedback. Recent community surveys indicated
and live is more than just a best practice – it stems from our     over 80 percent of residents believe our landowner respect
knowledge that actions speak louder than words. Our social
                                                                             a model
                                                               pioneeringCourtesy Matters, is working. Take a closer look.
                                                                   program,
licence to operate depends on working with stakeholders                innovation and
                                                               where are Encana.
                                                                   We
in a transparent, honest and respectful way by listening and efficiency meet / 22




Learn more about natural gas and Encana at www.encana.com
    take a closer look

    diversifying
                                                                                                                                 total comPany
    our resources                                                                                                                / nOrth america
        / key resource plays                                                                                                     1P / 14.3 1c / 20.0
                                                                                                                                     / 3,321         / 11,736         / 25,000

           greater sierra
           (includes horn river)
           Bc / canada
           1P / 1.3 1c / 3.5                                                                                                                                    Jonah
              236 /   1,809 /   1,100                                                                                                                           wy / united states
                                                                                                                                                                1P / 2.0 1c / 0.2

           cutBanK ridge                                                                                                                                           559 /    120 /   700
           (includes montney)
           aB / Bc / canada
                                                                                                                                                                Piceance
           1P / 1.8 1c / 4.6                                                                                                                                    cO / united states
              401 /   1,133 /   1,700                                                                                                                           1P / 1.6 1c / 1.4
                                                                                                                                                                   458 /    840 /   1,800

           Bighorn
           aB / canada
                                                                                                                                                                fort worth
           1P / 1.0 1c / 0.6                                                                                                                                    tX / united states
              239 /   488 /     600
                                                                                                                                                                1P / 0.9 1c / 0.7
                                                                                                                                                                   124 /    55 /    700
           coalBed methane
           aB / canada
                                                                                                                                                                east teXas
           1P / 1.9 1c / 1.7                                                                                                                                    tX / united states
              317 /   2,100 /   15,300
                                                                                                                                                                1P / 0.7 1c / 1.4
                                                                                                                                                                   348 /    230 /   300

           1P / proved reserves (tcfe )
           1c / economic Contingent resources (tcfe )
                                                                                                                                                                haynesville
             / 2010 average production (mmcfe/d )
                                                                                                                                                                tX / la / united states
             / net acres (thousands )
             / drilling inventory net wells (based on 1P + 1c )                                                                                                 1P / 1.8 1c / 4.8
                                                                                                                                                                   303 /    350 /   1,500
           as at december 31, 2010




    Despite a year of challenging prices, 2010     chairman’s message                           /8                                                   Resource play hubs are an innovative and
    marked great progress towards Encana’s pursuit                                                                                                   efficient production model tailor-made to
    of becoming North America’s leading, high-     Encana is committed to attaining the                                                              reduce natural gas production costs and
    growth, low-cost senior natural gas producer.  highest standards of transparent reporting                                                        environmental impact.
                                                   and accountability.

    ceO’s message                             /4                                                                                                     a culture Of innOvatiOn                     /21




                                                                                                     With its enormous inventory of low-cost,
                                                                                                     undeveloped resources, Encana believes
                                                                                                     it can be the highest-growth, lowest-cost
                                                                                                     senior natural gas producer in North America.



                                                                                                     why invest in encana                     /12
2   encana corporation / Annual Report 2010
diversifying
         OUR ResOURces
leading
         TecHNOLOGY

                                                                   leading
                                                                   t e chno l o gy

                                                          “We like encana’s management
                                                          and employees’ strong technical
                                                          and economic focus throughout the
                                                          process of finding and developing
                                                          hydrocarbons. the benefits show
                                                          up in early entries to the best north
                                                          American gas plays, encana’s
                                                          low cost structure, and focus on
                                                          maximizing its asset value.”
                                                          Andrew Fairbanks
                                                          Director, Canadian Energy Research
                                                          Bank of America Merrill Lynch




                              improved
                               drilling
                              practices




                 improved
                completions
                 practices




                                            downward
                                           step-change
                                          in production
                                              costs
                        encana continues to solidify its presence in several of the most exciting shale
d r iv ing
        fUTURe GROwTH
                        and tight gas plays in North America: the Haynesville in Louisiana and Texas,
                        Horn River in British columbia and Montney in Alberta and British columbia.



                        Driving future growth
                        350,000                               HORn RivER sHALE / Bc
                                                              with more than 250,000 net            693,000
                        NeT AcRes                                                                   NeT AcRes
                                                              acres in the Horn River, encana

                        303                                   believes it has an industry-leading
                                                              position in this play. without        274
                        MMcfe/d 2010 AveRAGe                                                        MMcfe/d 2010 AveRAGe
                        DAILY PRODUcTION                      any land retention concerns,          DAILY PRODUcTION
                                                              the company can immediately
                        1,500
                        weLL INveNTORY (1P + 1c)
                                                              begin optimization work with
                                                              resource play hub operations and
                                                                                                    1,600
                                                                                                    weLL INveNTORY (1P + 1c)
                                                              infrastructure development.
                        HAynEsviLLE sHALE / T X / L A                                               MOnTnEy TiGHT GAs / Bc / AB
                        Having completed the majority                                               since entering the Montney eight
                        of its land retention program in      264,000                               years ago, encana has improved
                        2010, encana holds 350,000 net        NeT AcRes                             cost structures by leveraging
                        acres in the heart of this exciting                                         technology and optimizing the
                        play. In 2011, it is expected         29                                    development process. with
                        that the majority of Haynesville      MMcfe/d 2010 AveRAGe DAILY            2010 average supply costs of
                                                              PRODUcTION
                        development activity will focus on                                          approximately $3 per Mcf, the
                        maximizing natural gas recovery by
                        establishing resource play hubs.
                                                              600                                   Montney is one of encana’s most
                                                                                                    economic plays and its evolution
                                                              weLL INveNTORY (1P + 1c)
                                                                                                    is an excellent analogy for what
                                                                                                    encana expects to achieve
                                                                                                    throughout its portfolio.




                        As at December 31, 2010
               portfolio
vAsT HIGH-qUALITY
                           vast high-quality portFolio
                           encana has built one of the largest, low-cost, contiguous land positions in many of
                           North America’s best resource plays.
                           BiGHORn / AB                            GREATER siERRA / Bc                      initiated the evaluation phase of the
                           This tight gas, multi-zone stacked      The focus in Greater sierra is           Niobrara formation, a thick shale
                           cretaceous play produces primarily      development of the Jean Marie            predominant throughout the basin.
                           sweet, liquids-rich natural gas.        formation and Horn River Basin.          JOnAH / w Y
                           Although historical development         encana began implementing multi-         Producing from the Lance formation,
                           focused on drilling vertical wells,     lateral horizontal drilling, resulting   wells in the Jonah field are stimulated
                           encana has had success extracting       in increased well performance and        with multi-stage advanced hydraulic
                           significant additional volumes          improved cost structures.                fracturing techniques. Historically,
                           by supplementing existing well          EAsT TEx As / T X / L A                  encana’s operations were conducted
                           locations with horizontal wells.        This tight gas, multi-zone play          in the over-pressured core portion of
                           COALBED METHAnE (CBM) / AB              targets the Bossier and cotton           the field; however, in 2008, encana
                           encana’s cBM play integrates the        valley zones and requires careful        began developing the adjacent
                           Horseshoe canyon coals with             application of technology to             normally pressured Lance (NPL).
                           shallower sands. Approximately          unlock the gas.                          Long-term development plans for the
                           75 percent of the total net acreage     FORT WORTH / T X                         NPL estimate as many as 3,500 wells
                           landholdings are owned in fee title,    This resource play stretches             to be drilled over a 10-year period.
                           which means the mineral rights are      underground across a 15-county           DEEP PAnukE / Ns
                           held by encana in perpetuity and        area and includes the Barnett shale      Located on the scotian shelf
                           mineral taxes are generally less than   in the fort worth Basin. encana          approximately 250 kilometres
                           the crown royalty.                      applies horizontal drilling and          (156 miles) southeast of Halifax,
                           CuTBAnk RiDGE / Bc / AB                 multi-stage reservoir stimulation to     the Deep Panuke project involves
                           encana’s focus in this tight gas        improve performance in this play.        offshore drilling pad and pipeline
                           reservoir is on long-term growth        PiCEAnCE / cO                            facilities installation to produce and
                           using the latest extraction             The Piceance Basin is characterized      process natural gas from the Deep
                           technology to produce gas from          by thick natural gas accumulations       Panuke field.
                           the Montney, cadomin and Doig           primarily in the williams fork
                           geological formations.                  formation. encana has recently
                                                                                      solid financial
                                                                                      OUR BOTTOM N c e
                                                                                      P e R f O R M A LINe
                                                                                      strengthening
SOlid
finAnciAl performAnce



     “We continue to look upon
      encana as one of the best
       managed independents,
                                                         strong
        with superior execution                       investment
                                                         grade
     capability and the best real                     credit rating
           estate on the block.”
                        greg pardy
         Managing Director, Co-head,
            Global Energy Research
               RBC Capital Markets
                                                                        life cycle
                                                                        approach
                                                                       to portfolio
                                                                      management




                                        balancing
                                       growth and
                                         financial
                                        flexibility
strong
     fINANcIAL PeRfORMANce
                             strong financial performance
                             Operationally and financially, encana is able to adapt to the challenges and opportunities that come its way,
                             all with the overriding goal of preserving value for its shareholders.


                               CAPITAL                                            PRODUCTION                                     LAND

                                Marketing &
                               Corporate 2%                                                                           Canadian                                        USA
                                                                                                                      Division                                        Division
                                                                       Canadian                                       42%                                             22%
                                   USA                                 Division
                                Division                               46%             USA                                       Canadian
                                   52%                                              Division                                      Division
                                                                                       58%                                           78%

                                               Total $4.8 Billion                                     3.3 Bcfe/d                             11.7 Million Net Acres

                               For the year ended December 31, 2010.



                             2010 REsuLTs                                     PROvEn TRACk RECORD / LOweRING cOsT sTRUcTURes
                                                                              Over the last three-year period, encana has demonstrated a 25 percent
                             3,321                                            reduction to its capital weighted portfolio average supply cost. with further
                                                                              efficiency gains and continued high-grading, the company is targeting further
                             MMcfe/d PRODUcTION
                                                                              reductions to approximately $3 per Mcf over the next 3 to 5 years.
                             $4,439                                           $/Mcf
                             MM cAsH fLOw
                                                                              2008 $4.69


                             $1.07
                                                                              2009 $4.26
                                                                              2010 $4.05
                             PeR Mcfe OPeRATING AND G& A cOsTs                2011F $3.60



                             $0.80                                            2011F represents initial projections.


                             ANNUAL cOMMON sHARe DIvIDeND
                                                                              Maintaining flexibility and capital discipline are key
                             2.7%                                             elements of encana’s business strategy. The company
                             2010 YeAR-eND DIvIDeND YIeLD                     continues to focus its capital spending on its highest-
                                                                              growth and highest-margin opportunities, all while
                             31%                                              further increasing efficiencies.
                             DeBT TO cAPITALIzATION
s u s ta i n a b l e
                       fUTURe sTRATeGY
                                         sustAinAble future strategy
                                         Infusing every element of encana’s growth plans is an innovative, value-driven
                                         corporate culture focused on maximizing margins by increasing operational efficiencies
                                         and continually striving to be one of the lowest-cost producers in the industry.

                                         1. OPPORTuniT y-RiCH                    3. CAPiTAL DisCiPLinE                  4. CuLTuRE OF innOvATiOn
                                         with more than 11.7 million net         Throughout this lower natural gas      The fourth competitive advantage
                                         acres of land in many of North          price environment, encana has          that supports encana’s strategy is its
                                         America’s most active natural           continued to maintain a strong         people and its culture of innovation.
                                         gas basins, encana has a vast,          balance sheet with $5.1 billion        encana is always looking for new
                                         high-quality asset base with over       available under unused, committed      ways to conduct its business, to
                                         20 years of drilling locations on       bank credit facilities at year-end     leverage technology and to share
                                         existing lands. encana believes         2010. Management stewards              learnings. It will continue to be
                                         that given the significant size and     the company to have a debt to          a leader in the development of
                                         quality of its assets, the greatest     capitalization of less than            innovative solutions that will help
                                         value proposition for shareholders      40 percent and a debt to adjusted      lower its cost structures.
                                         is to accelerate recognition of the     eBITDA of less than 2.0 times.         5. nATuRAL GAs
                                         value of these assets by delivering a   All of encana’s outstanding debt       DEMAnD iniTiATivEs
                                         sustainably higher growth rate.         at year-end 2010 was composed          encana’s Natural Gas economy
                                                                                 of long-term, fixed rate debt, with    team’s mission is to establish
                                         2. LOW-COsT FOCus
                                                                                 an average remaining term of           natural gas as the foundation of
                                         encana’s vision is to be the highest
                                                                                 about 13 years. All of these factors   North America’s energy portfolio.
                                         growth, lowest-cost senior natural
                                                                                 work together to help maintain the     This advocacy-focused team
                                         gas producer in North America. The
                                                                                 company’s investment grade             works closely with industry and
                                         company’s ability to achieve growth
                                                                                 credit ratings.                        government to develop initiatives in
                                         is supported by its existing low-cost
                                                                                                                        the areas of transportation, power
                                         structure and its firm commitment
                                                                                                                        generation and liquified natural gas
                                         to continue to drive costs down.
                                                                                                                        (LNG) export that are expected to
                                         for 2010, encana’s corporate
                                                                                                                        lead to increased demand for clean-
                                         supply cost was $4.05 per Mcf.
                                                                                                                        burning natural gas.
                                                                                                                                                                          take a closer look

                                                                                            financial and operating
                                                                                                     performance
                                                                                                                                                                 / year-end highlights


 financial highlights                                                                                          OPERatiOnal highlights

 (US$ millions, except per share amounts)                                         2010         2009 (1)        After Royalties                                                                  2010          2009 (1)
 revenues, net of royalties                                                      8,870           6,732         Production
 cash flow (2)                                                                   4,439           5,021         natural gas (mmcf/d)
   Per share – diluted                                                            6.00            6.68           canada                                                                        1,323           1,224
 net earnings                                                                    1,499             749           usa                                                                           1,861           1,616
   Per share – diluted                                                            2.03            1.00         total natural gas (mmcf/d)                                                      3,184           2,840
 Operating earnings (2)                                                             665          1,767         Oil & ngls (bbls/d)
     Per share – diluted                                                           0.90           2.35            canada                                                                      13,149         15,880
 total capital investment                                                        4,773           3,755            usa                                                                          9,638         11,317
 net acquisition and divestiture activity                                         (150)           (815)        total Oil & ngls (bbls/d)                                                      22,787          27,197
 net capital investment                                                          4,623           2,940
                                                                                                               total Production (mmcfe/d)                                                      3,321           3,003
 dividends Per common share                                                       0.80            0.80
                                                                                                               reserves (2)
 dividend yield (%) (3)                                                              2.7                2
                                                                                                               year-end reserves (Bcfe)                                                       14,335          12,774
 debt to capitalization (%) (2)                                                       31              32
                                                                                                               net reserve additions (Bcfe)                                                    3,074           1,857
 debt to adjusted eBitda (times) (2)                                                 1.4             2.1
                                                                                                               Production replacement (%)                                                        254             169
 debt to Proved developed
                                                                                                               reserve life index (years)                                                       11.8            11.7
   reserves ($/mcfe ) (2)(4)                                                       1.04            1.14
                                                                                                               (1) reflects Pro forma results. see Pro forma information on page 74.
 (1) reflects Pro forma results. see Pro forma information on page 74.                                         (2) 2009 results after royalties, before price related revisions employing constant prices and costs.
 (2) non-gaaP measures as referenced in the advisory on page 72.                                                   2010 results after royalties, employing forecast prices and costs.
 (3) Based on nyse closing price at year-end.
                                                                                                               for additional information on reserves reporting protocols, see page 73.
 (4) Based on forecast prices and costs, after royalties case.

 advisory
 encana reports in u.s. dollars unless otherwise noted. Production, sales, reserves and economic contingent resources estimates are reported on an after royalties basis, unless otherwise noted. certain information
 regarding the company and its subsidiaries set forth in this document including management’s assessment of the company’s future plans and operations, may constitute forward-looking statements or forward-
 looking information under applicable securities laws and necessarily involve risks and uncertainties associated with future events. as a consequence, actual results may differ materially from those anticipated in the
 forward-looking statements or information. for further details see the advisory on page 72 of this document.
 this document contains references to measures commonly referred to as non-gaaP measures, such as cash flow, cash flow per share – diluted, free cash flow, operating earnings, operating earnings per share –
 diluted, adjusted eBitda, debt, net debt and capitalization. additional disclosure relating to these measures is set forth on page 72 in the advisory.
 see also our endnotes on page 135 for certain defined terms used in this annual report.


                                                       resPOnsiBle de velOPment                        /38     management’s discussiOn
                                                                                                                                                                       Encana maintains a strong balance sheet and
Natural gas is the North American solution for
a secure energy future, a common sense,                Encana’s commitment to responsible
                                                                                                               and analysis                                    /45     is committed to being a low-cost producer.

economic alternative for transportation and            development means investing in communities              Encana is committed to the key business
power generation.                                      where it operates, protecting people’s                  objectives of maintaining financial strength,           financials                                      /78
                                                       health and safety and minimizing                        optimizing capital investments and continuing
                                                       environmental impact.                                   to pay a stable dividend to shareholders.




the natur al g as ecOnOmy                      /30
                                                                                                                                                                         Annual Report 2010 / encana corporation             3
                                        take a closer look
President & ceO



                  R A N DY
                         eresman


                                         abundant
                                         opportunities
                                            / ceo’s message




                       relentless
                       pursuit of
                     lowering cost
                       structures




                                                                              in our first year as a pure-play natural gas producer, we
                                          increasing the                      concentrated our efforts on two core objectives: efficiently
                                           value of each
                                          Encana share                        achieving our financial and operational goals for 2010
                                                                              and accelerating the value recognition of our enormous
                                                                              resource potential – the foundation for generating long-
                                                                              term value for every encana share.
                                                                              i am pleased to report that we very successfully
                                                                              accomplished our 2010 goals, and we made significant
                                                                              progress accelerating the value recognition of our asset
                                                                              base on the road towards our long-term objective of
                                                                              becoming north america’s leading, high-growth, low-cost
                                                                              senior natural gas producer.

                                                                              stROng 2010 PERfORmancE duRing a yEaR Of
                                                                              challEnging PRicEs

                                                              technological   2010 continued to provide clear evidence of how much has changed in
                                                              and operating   the world of natural gas. the revolutionary technical breakthroughs of
                                                               efficiencies
                                                                              recent years again delivered abundant supplies of natural gas to market
                                                                              at a time when the global and north american economies struggled to
                                                                              recover from a nagging recession. this resulted in natural gas prices that
                                                                              remained weak, averaging about $4.40 per mcf – levels that we believe
                                                                              are unsustainable in the long term. despite these persistent economic
                                                                              challenges, our teams achieved superior performance by efficiently
                                                                              delivering production per share growth of 12 percent and replacing more
                                                                              than 250 percent of our 2010 production. Proved reserves increased
                                                                              12 percent to 14.3 tcfe, a natural gas storehouse that represents close to
                                                                              12 years of supply based on 2010 production rates. financially, encana
                                                                              generated cash flow of about $4.4 billion, or $6 per share, supported
                                    the natural
                                   gas economy
                                                                              by commodity price hedges that resulted in realized hedging gains for
                                                                              2010 of about $810 million after tax. Operating earnings for 2010 were
                                                                              $665 million, or 90 cents per share. Beyond our drive to grow production

    4             encana corporation / Annual Report 2010
                                          Encana 2010 highlights

                                          financial                                  Operating                                  Reserves / before price revisions
                                             c
                                          •	 	 ash	flow	of	approximately	            •	 total	production	of	3.3	Bcfe/d          •	 proved	reserves	of	14.3	Tcfe
                                             $4.4 billion, or $6 per share           •	 total	natural	gas	production	of	           a
                                                                                                                                •	 	 dded	3.1	Tcfe	of	proved	
                                             o
                                          •	 	 perating	earnings	of	$665	               3.2 Bcf/d                                  reserves, compared to
and reserves, we continued our               million, or $0.90 per share                   •	 	 il	and	NGL	production	of	
                                                                                              o                                    production of 1.2 tcfe, for a
relentless pursuit of lower costs,        •	 capital	investment,	excluding	                   23,000 bbls/d                        production replacement of
achieving a very competitive supply          acquisitions and divestitures,                                                        more than 250 percent
                                                                                           •		operating	and	administrative	
cost of about $4 per mcf, and we             of $4.8 billion                                  costs of $1.07 per mcfe               •		proved	reserves	life	index	of	
are confident we can continue                                                                                                          approximately 12 years
                                          for additional information on reserves reporting protocols, see page 73.
to lower production costs as all
of our teams are now targeting a
supply cost of about $3 per mcf, based on 2010 cost structures, over                       making thE bEst invEstmEnt dEcisiOns
the next three to five years. we define supply cost as the flat nymeX                      with the new reality of natural gas abundance in north america, there’s
natural gas price that yields an internal rate of return of 9 percent after                a level of competitiveness that we have not seen in years. what’s not
tax, and does not include land costs. it is the prime financial measure and                new is our commitment to capital and financial discipline – our process
threshold for determining which projects we will fund to grow production                   for deciding which projects we will fund. Because we have a wealth of
and reserves. Our focus on increasing efficiency and reducing cost has a                   high-growth opportunities, our business units compete internally for
solitary goal – maximizing the margins we earn on all production. when                     capital to fund a diverse and high-quality portfolio of projects for the year
we win the drive to be the lowest-cost producer, we sustain our business                   ahead, and for the long term. it’s not unlike how people manage their
throughout all stages in the supply-demand price cycle. Our 2010 results                   own portfolio of financial opportunities. we all have choices on where to
illustrate our continued focus on capital discipline, operational excellence,              invest our money. On pages 16 - 17, we explain our life-cycle approach
risk management and a relentless pursuit of lowering cost structures and                   to investing in a suite of opportunities that generates strong returns and
maximizing margins.                                                                        creates value for the long term.

wEll-dEfinEd and disciPlinEd PuRsuit Of lOng-tERm                                     financial and caPital stEwaRdshiP, disciPlinEd
valuE cREatiOn                                                                        Risk managEmEnt
the key to financial and operating success in this highly competitive                 in this persistent environment of low natural gas prices, financial
natural gas environment, and the recipe for long-term value creation,                 stewardship is of utmost importance. we will not pursue growth at any
resides in a series of disciplined practices that are the focus of everyone           cost. Our moderated growth plan for 2011 reflects the reality of current
at encana. Our strategies and operations are intensely researched,                    prices and our disciplined approach. On pages 18 - 19, our chief financial
tested, detailed and intricate. that is why the theme of our annual report            Officer sherri Brillon answers the tough financial questions on our
this year invites you to take a closer look at all that we do in pursuit of           guidelines for maintaining the financial strength of our balance sheet, our
success and leadership in every aspect of our business. in the pages that             company’s approach to paying an attractive dividend and when we choose
follow, i invite you to read this comprehensive overview of the meticulous            to purchase shares, plus details on how to compare key accounting rules
and rigorous steps we are taking in pursuit of being north america’s best             when measuring our financial performance against our u.s. peers and why
natural gas producer.                                                                 we focus on operating earnings rather than net earnings.

EnORmOus REsOuRcE POtEntial – fOundatiOn                                              RElEntlEss PuRsuit Of lOwERing cOsts
fOR valuE cREatiOn
                                                                                      efficiency and optimization are at the core of our approach to business.
first, our high-quality asset base. in march 2010, we redefined encana,
                                                                                      everyone in the company is charged with finding ways to produce more
providing to investors extensive detail on the huge potential of our natural
                                                                                      natural gas with less effort, energy and investment, to reduce our impact
gas reserves and resources. we outlined how we are in an ideal position to
                                                                                      on the environment and to continually innovate with every step we take in
continue to accelerate our production growth even during a period when
                                                                                      our processes. the technical evolutions we have experienced in natural
the market is abundantly supplied with natural gas. we know very well how
                                                                                      gas development over the past five years alone have redefined how we
plentiful natural gas has become in north america, which means that we
                                                                                      are doing our work. through pages 21 - 28 we define our culture of
also know that our key to success is to be the lowest-cost producer in the
                                                                                      innovation, a creative way of working that infuses all we do at encana.
continent. the size and depth of our natural gas reserves and resources
is our long-term bank account of value. it is the foundation for how we
create value. On pages 12 - 15, we outline why our resource foundation               the resource play hub
alone is a compelling reason to invest in encana. the gold standard story
                                                                                     the resource play hub is encana’s disciplined approach to move resource
showcases how independent evaluators have judiciously defined the
                                                                                     plays into commercial production in a repeatable, transferable manner using
size and depth of our natural gas reserves and resources, an inventory
                                                                                                                                                                            ceO’s message




                                                                                     enterprise-wide collaboration and yielding consistently reduced costs, and
that taps some of north america’s most prolific sedimentary basins from              improved safety and environmental performance.
northern British columbia, through alberta, wyoming, colorado and
texas to louisiana. this high-quality asset base provides us with more
opportunities than we have capital to invest, which leads to how we
decide which projects we fund.


                                                                                                                                  Annual Report 2010 / encana corporation   5
    in past, you may have heard us speak about our gas factory operations
    and our manufacturing approach to development. in the same way that             competitive advantages
                                                                                                                             achieved the best safety results to
    our practices, operations and technologies evolve, so do the names we
                                                                                    opportunity-rich                         date, recording our lowest injury rate
    place on them. how we produce natural gas is a complex and integrated
                                                                                    •	 	 orth	American	portfolio	of	natural	 in encana’s history. while we can
                                                                                       N
    process that involves thousands of incremental steps, operational and
                                                                                       gas assets                            tell you about how we’ve operated
    engineering augmentations that each offer our staff new opportunities to
                                                                                       h
                                                                                    •	 	 istory	of	entering	plays	early	     responsibly, a true measure is
    improve, invent and do better next time. for every creative and efficient          and leveraging technology to
                                                                                                                             independent assessment. for
    solution we develop and repeat across our operations, we increase                  unlock resources
                                                                                                                             the fifth year in a row, encana
    efficiency. that is the focus of what we call our resource play hub, the           t
                                                                                    •	 	 remendous	reserves	and	
                                                                                       economic contingent                   was named to the dow Jones
    evolved name for our core production complex and a way of working that
                                                                                       resources base                        sustainability world index and we
    strives to reduce operating and capital costs while continually improving
                                                                                    low-Cost focus                           earned the title of “sustainability
    efficiencies to maximize the margins on every molecule of natural gas we
                                                                                    •	 	 mong	the	lowest-cost	structures	
                                                                                       a                                     leader” in the oil and gas industry.
    produce. to really understand encana, one must examine the productive
                                                                                      in natural gas industry
    intricacies of our resource play hubs and the relentless mindset of                                                      as we look to 2011 and natural
                                                                                       l
                                                                                    •	 	everaging	scale	and	efficiencies	
    continuous improvement that permeates our culture of innovation.                   across operations                     gas prices remain at levels we
                                                                                                                             believe are below the average
    thE cOmmOn sEnsE altERnativE fuEl                                               Capital discipline
                                                                                    •	 	 isciplined	approach	to	capital	
                                                                                       d                                     cost to add new production, our
    this is the second year we have designed our annual report like a                  spending	and	financial	stewardship daily focus remains squarely on
    news magazine, and the reason is because there’s plenty of compelling           •	 	 trong	corporate	governance
                                                                                       s                                     the things we can manage: costs,
    news to report. given north america’s newly discovered natural gas                                                       operational efficiency, risk mitigation
                                                                                    Culture of innovation
    abundance, the greatest question for society is how do we capitalize            •	 	nnovative	and	comprehensive	
                                                                                       i                                     and pursuing innovative ways to
    on this clean, affordable and versatile fuel? On pages 30 - 36 we define           knowledge-sharing                     accelerate the value recognition
    the numerous benefits of the common sense alternative fuel – natural                                                     of our resource potential. Over the
    gas. while methane has long heated many of our homes, there are so                                                       past few years we have entered
    many other uses that make more sense than ever, primarily generating            into about 60 agreements with u.s. and canadian companies looking to
    electricity and fueling our vehicles. this fuel is very competitive             earn healthy returns by investing in projects that step up the development
    economically and it generates lower emissions, 25 to 50 percent lower           of our resource potential. these joint ventures increase project returns,
    than gasoline for vehicles and coal for electricity respectively. natural gas   shorten the timeline for resource development and lower our economic
    is the common sense energy solution for fleet vehicles, transportation,         and project execution risk. they are the kinds of transactions that illustrate
    power generation and a variety of other uses. at encana, we are putting         the acceleration of value recognition that we are pursuing. we invest
    natural gas to work wherever we can. we now have 10 of our drilling             shareholders’ savings and business partners’ capital to deliver long-term,
    rigs fueled by natural gas. in the field, we have about 50 of the 1,000         sustainable value in every encana share and every encana community.
    vehicles in our fleet running on natural gas, and we’re planning to convert
                                                                                    in closing, my thanks go to our Board of directors for its wise and
    them all. we built and opened our first natural gas fueling station in red
                                                                                    prudent leadership during our inaugural year as a pure-play natural gas
    river Parish, louisiana and have four others in development. we are
                                                                                    producer. i also extend my appreciation for the dedication, innovative
    also working with public policy-makers to help make it easier for power
                                                                                    leadership and accomplishments of our management teams, employees
    companies to generate electricity from natural gas rather than coal, and
                                                                                    and contractors in 2010. we’ve established a vast foundation that’s
    we’re inviting municipalities to follow the lead of cities like los angeles,
                                                                                    burgeoning with resource potential and opportunity, one that i’m
    where the last diesel bus was recently retired because 99 percent of the
                                                                                    confident our people will ambitiously develop as we continue to pioneer
    city’s 2,228 transit buses run on compressed natural gas.
                                                                                    and deliver sustainable value creation for many years ahead.
    REsPOnsiblE and safE in all wE dO
    the front end of our annual report concludes with an update on how
    we contribute to the communities where we operate. we help build
    capacity by providing educational sponsorships to high school students          randy eresman
    pursuing resource science professions, investing in environmental               President & chief executive Officer
    education and supporting the next generation of aboriginal leaders.             encana corporation
    in 2010, we streamlined how we manage our environment, health and               march 4, 2011
    safety practices with the launch of ethos, a management system that
    guides our measurement and assessment of safeguarding our people
    and our environment. Our safety focus is paying dividends as last year we



6   encana corporation / Annual Report 2010
Our resource play hub approach to natural gas production reduces costs on two fronts. First, with
a disciplined approach to managing surface logistics it helps reduce our operating and capital costs
– and increases value for our shareholders. Secondly, by bringing together our land, technology
and people in a focused effort, the resource play hub reduces our operational footprint – lessening
impact on the environment and enhancing sustainability. Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com
                                                 take a closer look
chairman Of the BOard




                            dav i d
                                  O ’ B r ie n



                                                 accounting to
                                                 our shareholders
                                                     / chairman’s message




                               encana remains steadfastly committed to strong                                  often called “say on pay”, which gives shareholders an opportunity to
                                                                                                               provide feedback on encana’s approach to executive compensation.
                               corporate governance and corporate responsibility
                               practices – principles and policies that successfully                           encana’s Board of directors is committed to monitoring environmental
                                                                                                               performance to ensure the company complies with or exceeds
                               guided the company through a year marked by further
                                                                                                               environmental laws and regulations and it participates with governments
                               uncertainty in commodity prices and major changes in                            and industry in providing input into regulatory development. we recognize
                               the natural gas industry.                                                       that responsible environmental practices contribute to long-term
                                                                                                               shareholder value creation. encana continues to strive to reduce emissions
                               as chairman of the Board, i have a responsibility to lead the Board of
                                                                                                               intensity, responsibly source, handle and dispose of water, and increase
                               directors in ensuring that encana creates maximum long-term value
                                                                                                               efficiencies in its operations as it advances opportunities and practices
                               from its vast, high-quality inventory of natural gas resources. i also have
                                                                                                               aimed at increasing the use of natural gas as a cleaner energy source.
                               the responsibility to ensure that investors and other stakeholders have
                               confidence in encana, its financial performance, ability to do its job in the   all of these measures, in concert with encana’s corporate strategy,
                               safest possible manner, and that its corporate governance practices and         continued capital discipline and prudent risk management, are aimed at
                               policies are effective in assessing and mitigating potential risks and the      increasing shareholder value.
                               impacts arising from its activities.
                                                                                                               since the split of encana in 2009, which resulted in the company’s
                               encana fully complies with all applicable regulatory requirements and we        transition into a pure-play natural gas company, we have reconstituted
                               are committed to attaining the highest standards of transparent reporting       the Board of directors. three directors are women who have built highly
                               and accountability that these requirements represent. it goes without           credible careers in the energy sector and four of the 10 outside directors
                               saying that good corporate governance and corporate responsibility              bring comprehensive u.s. expertise and knowledge, backgrounds that
                               practices benefit encana’s business and enhance shareholder value.              reflect the diverse demands of encana’s north american operations. we
                                                                                                               believe that we have created a Board of directors with a broad range of
                               at encana corporate governance and corporate responsibility programs
                                                                                                               skills and experience to fulfill its role in both overseeing management and
                               are aligned and integrated; they have a common objective – enhancing
                                                                                                               providing solid advice and counsel.
                               stakeholder confidence that encana operates in compliance with
                               securities, environmental and other laws while at the same time operating       in closing, my thanks go to our Board of directors for its steadfast
                               ethically, responsibly and as a good neighbour and corporate citizen.           dedication and leadership during encana’s inaugural year as a pure-
                                                                                                               play natural gas producer. i also express my appreciation to encana’s
                               encana was recognized for its leadership in this area once again this past
                                                                                                               management, employees and contractors for their strong performance
                               year with a number of awards and accolades. we are very proud of these
                                                                                                               during a year marked by continued challenges. Our company is well
                               achievements. however, we are committed to continually evaluating and
                                                                                                               positioned to meet these challenges in 2011 and beyond.
                               enhancing our corporate governance practices.
                                                                                                               On behalf of the Board of directors,
                               in 2010, encana significantly updated its corporate responsibility Policy.
                               recognizing their importance, the Board of directors also approved new
                               stand-alone environment and health and safety policies. these policies
                               and data measuring encana’s corporate responsibility performance
                               can be viewed at www.encana.com.

                               in the past year, encana’s Board of directors also approved a plan              david P. o’Brien
                               to include a non-binding advisory vote by shareholders at the 2011              chairman of the Board
                               annual general meeting on the subject of executive compensation,                encana corporation



                        8      encana corporation / Annual Report 2010
take a closer look

strong
leadership
    / our executive and board




Executive Officers                                                                       Board of Directors


Randy Eresman / president &                   mike mcallister / executive                david O’brien, O.c.                        allan sawin
chief executive officer                       vice-president (Senior Vice-President,     david O’Brien is chairman of encana’s      allan sawin is President of Bear
named encana’s chief Operating Officer        Canadian Division)                         Board of directors and also serves as      investments inc. and serves as
in 2002, randy became President &             responsible for the canadian deep Basin    chairman of the Board of royal Bank        a director of a number of private
chief executive Officer of encana on          Business unit, which includes two of       of canada and is a director of molson      companies.
January 1, 2006. he is also a member          encana’s key resource plays: cutbank       coors Brewing company, transcanada
of encana’s Board of directors.               ridge in British columbia and northwest    corporation and enerplus corporation,      bruce waterman
                                              alberta and Bighorn in west central        as well as several other private           Bruce waterman is senior
sherri brillon / executive vice-president     alberta. mike also acts as alternate       energy-related companies.                  vice-President, finance & chief
& chief financial officer                     and delegate to the canadian                                                          financial Officer of agrium inc.
responsible for treasury, tax, financial      division President.                        Randy Eresman
risk and risk reporting, internal audit and                                              randy eresman is President & chief         clayton woitas
sarbanes-Oxley compliance, portfolio          bill Oliver / executive vice-president &   executive Officer of encana corporation.   clayton woitas is chairman & chief
management, strategic and corporate           chief corporate officer                                                               executive Officer of range royalty
planning, and legal and corporate             responsible for human resources,           Peter dea                                  management ltd. and serves as a
secretarial, sherri has been named on         communications, investor relations,        Peter dea is President & chief executive   director of nuvista energy ltd. and
canada’s most Powerful women:                 media relations, community involvement,    Officer of cirque resources lP.            enerplus corporation as well as several
top 100 over the past four years.             information technology and                                                            private energy-related companies and
                                                                                         claire farley                              advisory boards.
                                              administrative services, including
mike graham / executive vice-president                                                   claire farley is the co-founder of rPm
                                              the BOw building project.
(President, Canadian Division)                                                           energy llc and is also a director of
responsible for encana’s canadian             bill stevenson / executive vice-           fmc technologies, inc.
division, including key resource plays;       president & chief accounting officer
                                                                                         fred fowler
greater sierra in British columbia,           responsible for company-wide
                                                                                         fred fowler is a corporate director
cutbank ridge in British columbia and         corporate comptrollership and
                                                                                         and is the chairman of spectra energy
alberta, Bighorn and coalbed methane          accounting functions within encana,
                                                                                         Partners, lP.
in alberta, as well as encana’s deep          including financial and management
Panuke project in atlantic canada.            reporting, accounting research and         barry harrison
                                              accounting systems.                        Barry harrison is a corporate director
bob grant / executive vice-president,
corporate development, eh&s                   Jeff wojahn / executive vice-president     and independent businessman. he
and reserves                                  (President, USA Division)                  is the chairman of the Board of the
                                                                                         wawanesa mutual insurance company
responsible for ensuring consistency          responsible for all of encana’s upstream
                                                                                         and its related companies.
of processes for encana’s acquisitions        exploration and production activities
and divestitures, as well as business         in the united states, which includes       suzanne nimocks
development, reserves assessment,             encana’s key resource plays at the         suzanne nimocks is a corporate
competitor analysis, corporate                Jonah field and the Piceance Basin in      director and serves as a director
environment, health & safety, and             the u.s. rockies, and the fort worth       of rowan companies, inc. and
corporate responsibility.                     and east texas Basins in the state of      arcelormittal.
                                              texas and the haynesville shale in
Eric marsh / executive vice-president,        louisiana and texas.                       Jane Peverett
natural gas economy (Senior Vice-
                                                                                         Jane Peverett is a corporate director
President, USA Division)                      Renee Zemljak / executive
                                                                                         and serves as a director of canadian
responsible for pursuing the                  vice-president, midstream,
                                                                                         imperial Bank of commerce, northwest
development of expanded natural gas           marketing & fundamentals
                                                                                         natural gas company, B.c. ferry
markets in north america, including           responsible for positioning encana         authority and associated electric & gas
involvement in government and                 as a natural gas supplier of choice,       insurance services limited.
regulatory relations to expand these          maximizing the company’s netback
markets. eric also acts as alternate and      prices and optimizing the profitability
delegate to the usa division President.       of the company’s midstream assets.




                                                                                                                                      Annual Report 2010 / encana corporation   9
     take a closer look

     reporting
     responsibly
        / to our shareholders




                                                     PROductiOn Of
                                                                                                    Vol / two Issue / one
                                                     this REPORt
                                                                                                    www.encana.com
                                                     this publication is printed on fsc-certified
                                                     paper, made of at least 10 percent
                                                     post-consumer waste. the two inserts
                                                     are printed on paper made with
                                                     100% post-consumer recycled fibre.
                                                     the cover paper, along with pages 1-44,
                                                     were manufactured using natural gas for
                                                     10 percent of the manufacturer’s total
                                                     energy needs.
                                                     the management’s discussion and analysis
                                                     and the financial statements are printed on
                                                     a paper manufactured in a plant that uses
                                                     natural gas to fuel the large dryers needed
     advisORy / PagE 72                              to dry the coating applied to the paper, and
     encana reports in u.s. dollars unless           as the primary fuel for its boilers.
     otherwise noted, and discloses reserves
                                                     Printing took place at Blanchette Press,
     data in accordance with canadian
                                                     which uses natural gas as the source
     securities regulatory requirements and select
                                                     of energy for the furnace that heats
     supplemental disclosure in accordance with
                                                     its 28,000 square-foot building,
     the u.s. regulatory reporting requirements.
                                                     housing all its manufacturing and
     for further details please see the advisory
                                                     administration operations.
     regarding reserves data and Oil and gas
     information on page 73.                         Because of these choices, production of
                                                     this report:
                                                     > avoided close to seven tons of
     wEb/mEdia links                                   greenhouse gas emissions
     in this report you will see this                > saved over 62,000 gallons of water
     ‘link’ icon, which represents
                                                     > reduced solid waste by close
     websites you can visit to find out more
                                                       to 3,750 pounds
     information on the topic being discussed.



     fEEdback                                        JOin thE cOnvERsatiOn
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     Please take a few minutes to provide            matters to you.
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     thank you.
     www.encana.com/news/2010arsurvey/               endnotes can be referenced on page 135.




           please recycle this publication                 printed in Canada



10   encana corporation / Annual Report 2010
Encana knows vehicles fueled by natural gas are the future, so we’ve teamed up with Westport
Innovations and ALT fuels to lead by example. Through our Ride & Drive program, interested
organizations can take a two-day test drive of an 18-wheel, heavy-duty truck fueled entirely by
liquefied natural gas (LNG) as part of their daily operations. Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com
     take the opportunity




       why
       invest
       in
                                                                                                 a diverse
                                                                                                 portfolio
                                                                                                 / with the right



       encana
                                                                                                 balance        /16

                                                                                                 answering
                                                                                                 the tough
                                                                                                 financial
                                                                                                 questions
                                                                                                 / Q & a with
                                                                                                 sherri brillon /18




       a vision for growing shareholder value
     a pure-play company / positioned for growth /13
     as north america’s largest independent natural gas producer, encana has a very large,
     geographically diverse, high-quality portfolio of natural gas assets that include some of
     the lowest-cost producing properties in the industry.



                                                                   the gold
                                                                   standard /
                                                                   reserves and
                                                                   resources
                                                                   reporting    /14

                                                                   www.encana.com/investors/



12   encana corporation / Annual Report 2010
why invest in encana / because we are


a pure-play company
/ positioned for growth

                                                                              mode as quickly as possible.             production per share growth plans
                                                                              the second is by attracting joint        is a strong dividend yield. in 2010,
                                                                              venture partners to leverage             encana paid dividends of
                                                                              encana’s capital investment. Over        $0.80 per share which, based
                                                                              the past three years, encana has         on the year-end share price,
                                                                              attracted more than $4 billion in        represents a yield of approximately
                                                                              third-party capital. not only has this   2.7 percent. encana believes
as north america’s largest            the foundation for a higher growth      facilitated an accelerated pace of       this combination of growth and
independent natural gas               rate begins with the quality of         development, it has also lowered         yield provides investors with a
producer, Encana has a very           encana’s resource base. with            the overall risk of encana’s portfolio   compelling investment opportunity.
large, geographically diverse,        a huge land position in many of         and improved project economics.
                                                                                                                       fOcus On lOng-tERm
high-quality portfolio of natural     the key north american natural                                                   valuE cREatiOn REmains
gas assets that include some          gas resource plays, the company         “Long-term growth potential for          PaRamOunt
of the lowest-cost producing          has an advanced understanding           Encana is impressive with the         “Our strategy is focused on
properties in the industry.           of project economics that allows        company planning to double            high-growth, low-cost margin
these long-life resource plays,       it to strategically invest in assets    production per share in five          maximization as we continue
which contain a huge inventory        with industry-leading potential         years (from 2009 base). While         our tradition of maintaining the
of drilling opportunities, allow      for production growth and value         the implied 15 percent annual         company’s financial strength,
for large-scale repeatable            creation. encana’s inventory of         compound annual growth rate           applying strict discipline to all
development programs that             drilling opportunities is more than     is impressive, we believe the         capital investment and continually
deliver predictable and profitable    20 years. the depth and quality         long-term growth potential            capturing operational efficiencies
production growth. with its           of this inventory is so strong that     of the company is likely to be        as we grow production. By
enormous inventory of low-cost,       encana believes the greatest            restrained as Encana manages          accelerating our development pace,
undeveloped resources, encana         value-creating proposition for its      around weak gas prices.”              we are advancing value recognition
believes it can be the highest-       shareholders is to accelerate the       tom driscoll                          of our huge natural gas resource
growth, lowest-cost, senior natural   monetization of this inventory.         managing director, Barclays Capital
                                                                                                                    inventory. however, we are mindful
gas producer in north america.        “Overall, when we think about                                                 that during periods of low prices,
supported by its tremendous           creating value for our shareholders,    use of third-party capital allows     we may need to temporarily reel in
assets – people and resources         there are a few key components          encana to lower costs, increase       our growth rate,” says eresman.
– the company is focused on           that drive our strategy. the first –    capital efficiencies and bring value  as evidence of this, encana’s 2011
increasing the value of each          which is at the forefront of all our    forward sooner through increased      pace of development balances the
encana share, and doing it at the     investment decisions – is our focus     activity. Joint venture partner funds company’s priorities in responding
lowest cost in the industry.          on reducing costs. the second           are being deployed to develop         to near-term uncertainty with
                                      stems from the basis that we are        assets that would otherwise remain continuing investment in long-
“Having built a high-quality          opportunity-rich. this provides         dormant in the company’s inventory term capacity to grow production
resource base, the greatest           the ability to accelerate the value     for a longer period. “Overall, we’re  more aggressively. the company’s
value-creating proposition            recognition inherent in our vast        targeting annual joint venture        planning focus is to position itself
for our shareholders is               inventory very economically,” says      investments of between $1 billion     to maintain momentum, controlling
to accelerate the value               randy eresman.                          and $2 billion,” says eresman.        the things it can control and
recognition inherent within our       so how will this be achieved?                                                 reacting to changes in internal and
                                                                              encana’s employees share an
undeveloped resources by              encana has a two-pronged                                                      external environments with speed
                                                                              innovative, value-driven corporate
delivering a sustainably higher       approach to accelerate value                                                  and discipline.
                                                                              culture focused on maximizing
growth rate than historically         recognition. One is increasing          margins by increasing operational
established, and doing so at          development pace to reduce the          efficiencies and continually striving
the lowest possible cost.”            size of its inventory through capital   to be the lowest-cost producer.
randy eresman                         deployment and by moving forward        complementing encana’s
president & Ceo
                                      to resource play hub development



                                                                                                                        Annual Report 2010 / encana corporation   13
     why invest in encana / because we use


     the gold standard
     / reserves and resources reporting




     “With 100 percent of our reserves and
     contingent resources externally evaluated
     by Independent Qualified Reserves
     Evaluators, Encana is leading the way
     in reserves and resources evaluation
     practices with more consistent and
     comprehensive disclosure.”
     bob grant
     executive vice-president,
     Corporate development, eh&s & reserves




     Encana has been busy over the past decade, building one of the
     largest natural gas resource portfolios in north america. the effort
     has caused bob grant to feel the company is sitting on a wealth
     of opportunities. his view is bolstered by knowing that Encana
     employs industry-leading reserves and resources evaluation
     practices and standards of disclosure.

     every year, companies are required to report an estimate of their oil and
     gas reserves. typically, an external consulting firm is retained to provide
     an assessment of a company’s reported numbers. these assessments
     occur in a variety of forms, separated by the degree of rigour applied by
     reservoir evaluation engineers. they are:

     •	 	 rocess Review – a consulting firm is retained to review the
        P
        procedure that an oil and gas firm uses to internally estimate
        its reserves.

     •	 	 udit – a consulting firm is retained to evaluate a portion of the
        a
        company’s reserves for comparison against the internally generated
        numbers. typically, the internally generated numbers are reported.

     •	 	 valuate – a consulting firm is retained to evaluate and estimate all of
        E
        the company’s reserves. the reported numbers are those determined
        by the third-party firm.

     at year-end 2010, encana once again retained independent Qualified
     reserves evaluators (iQres) to conduct a complete evaluation of not only
     the company’s reserves, but also its economic contingent resources.




14   encana corporation / Annual Report 2010
                                                                                                      “it is important for investors to
tREmEndOus REsOuRcE POtEntial
gOld standard in reserves disclOsure                                                                  take the time to understand           “We have described Encana
Reserves and Economic contingent Resources* (tcfe)                                                    the differences in estimates of       as being a treasure chest of
                                                                                                      reserves and resources, the           opportunity. Implicit in this
                                                                                            3C / 56.5 evaluation procedures employed        description is our belief that
                  1C / 20.0
                                                    2C / 36.7                                         and the qualifications of those       Encana’s vast and diversified
                                                                                                      engaged. for example, on the          undeveloped land base
                                                                                            3P / 27.1
                                                    2P / 23.0                                         subject of contingent resources,      contains some of the best
                 1P / 14.3
                                                                                                      encana reports numbers that have exploitation and development
                                                                                                      been constrained by economic          opportunities in North America.”
                                                       Reserves      Economic Contingent Resources
                                                                                                      considerations and fully evaluated    brian dutton
Reserves: 1P is proved, 2P is proved plus            *evaluated by independent Qualified reserves     by independent qualified evaluators, director, Canadian oil & gas equity research
probable, 3P is proved plus probable plus possible. evaluators as at december 31, 2010, employing                                           Credit suisse securities (Canada) inc.
                                                     a business case price forecast.
                                                                                                      whereas many other companies do
Economic contingent resources: 1c is low
estimate, 2c is best estimate, 3c is high estimate.                                                   not. as a consequence, another
                                                                                                      company may appear to have a large or larger reported resource base on
                                                                                                      what might very well be a smaller acreage position in a given play, but their
the three classifications of contingent resources have the same degree of
                                                                                                      reported numbers may include volumes that are currently uneconomic and
technical certainty as the corresponding reserves category. for example,
                                                                                                      have not been independently evaluated.”
the 1c contingent resources meet most of the same criteria as proved
reserves; most importantly, they have the same degree of technical                                    how did encana become so well positioned? “Because we entered
certainty – a 90 percent probability that the quantities recovered will                               these plays at an early stage, and amassed large, low-cost, contiguous
equal or exceed the estimated number. the major factor that prevents                                  land positions,” says grant. “Our portfolio includes large positions at
them from being included as proved reserves is time. generally, 1c                                    various stages of development in many of the most prospective plays in
contingent resources exceed the five-year regulatory guideline for                                    north america. we are very well positioned – in almost every region in
proved reserves development. By adding the qualifier that the contingent which we operate.”
resources are “economic”, the resources are high-graded. shareholders                                 Before the commercial development of unconventional natural gas, a
then understand that these resources are expected to be economically                                  company in this industry typically considered itself to be successful if
recoverable under the fiscal conditions that encana expects to prevail.                               it had more than one or two years of drilling inventory. today, encana’s
in accordance with the definitions for reserves and resources established                   drilling inventory is vastly larger than historical levels – about 20 years
by canadian and u.s. regulatory authorities, the iQres have estimated                       using the “best estimate” 2P plus 2c figures. looking at the near-term
that encana’s reserves range from 14.3 to 27.1 tcfe and the economic                        development programs, encana has identified across its resource base a
contingent resources range from 20.0 to 56.5 tcfe. “we believe this is                      drilling inventory of approximately 37,000 net locations.
                                        the gold standard in reserves                       “the drilling inventory of high certainty reserves and resources locations
                                        and resources evaluation                            that has been identified on encana’s vast landholdings is both substantial
“Encana is exceptionally well
                                        practices and disclosure, and                       and economic, employing a forecast of commodity prices that essentially
positioned in unconventional
                                        represents the highest level                        mirrors recent forward strip pricing. this economic inventory provides our
gas, in our view, exploiting
                                        of corporate governance with                        company with substantial optionality, not only with respect to pace and
its early-mover advantage in
                                        respect to reserves and resources                   focus of development, but also with respect to funding, such as from
these resources. Encana’s
                                        reporting. it means that encana’s                   cash flow, or joint venture initiatives,” says grant.
unconventional gas resource
                                        reported numbers are often more
base is amongst the largest and
                                        conservative compared to those
best of all the resource players.”
                                        reported by others operating in the
andrew potter                           same plays,” says grant. this is                                   14.3 Tcfe proved
managing director, institutional                                                                               reserves
equity research                         the core reason behind encana’s
CiBC world market inc.                  confidence in the quality of its
                                        reported reserves and resources.




                                                                                                                                 100% externally
                                                                                                                                    evaluated
                                                                                                                                  reserves and
                                                                                                                                    resources




                                                                                                                                             Annual Report 2010 / encana corporation      15
     managing a suite of assets as geographically      why invest in encana / because we have

             and technically diversified as those in
     encana’s portfolio is a dynamic process that      a diverse portfolio
     balances the risks and returns of every dollar    / with the right balance
           invested on a project-by-project basis.




                                                                    it’s like managing your own             encana’s life cycle approach to
                                                                    personal investment portfolio,          portfolio management provides a
                                                                    and many of the same questions          strategic framework to evaluate
                                                                    that you would ask yourself             projects and make investments that
                                                                    are analyzed and debated by             create value by reducing costs and
                                                                    Encana’s management team                maximizing margins. it weighs short-
                                                                    every day: which investments will       and long-term goals, divestitures
                                                                    bring growth and returns in the         and acquisitions, risks and rewards
                                                                    short term? where does encana           of investments, and forecast
                                                                    need to allocate dollars today to       and actual results, aligning each
                                                                    ensure growth and sustainability in     component with the same end goal
                                                                    future years? what assets are no        of achieving sustainable growth and
                                                                    longer a strategic focus and can        value for encana shareholders.
                                                                    therefore be sold? what assets
                                                                                                             1   stRatEgic Plan
                                                                    are available that can be added
                                                                                                            the strategic plan looks closely at
                                                                    to encana’s portfolio in order
                                                                                                            the company’s overarching strategy
                                                                    to successfully execute on the
                                                                                                            by focusing on each operating
                                                                    company’s strategic objectives?
                                                                                                            division’s resource assessments.
                                                                    in your own portfolio, you might
                                                                                                            this is a detailed, bottom-up
                                                                    ask similar questions to meet
                                                                                                            examination of each operating
                                                                    your goals: should i pay down my
                                                                                                            area’s drilling inventory, right down
                                                                    mortgage or invest more in my
                                                                                                            to type curve analysis and cost
                                                                    retirement fund or my children’s
                                                                                                            structures. this plan forms the
                                                                    college savings? the answer is
                                                                                                            basis for establishing long-term
                                                                    never simple, and finding a balance
                                                                                                            goals and for the second phase of
                                                                    between long- and short-term
                                                                                                            the portfolio process, encana’s
                                                                    objectives requires discipline.
                                                                                                            annual budget.
                                                                    “we have to fund a balanced
                                                                                                             2   annual budgEt /
                                                                    portfolio,” says corey code,                 PROJEct aPPROval REquEsts
                                                                    encana’s vice-President, Portfolio      when the annual budget is
                                                                    management and assistant                set, there are both economic
                                                                    treasurer. “it’s critical that we       hurdles that must be met prior
                                                                    think about both the short- and         to investment and qualitative
                                                                    the long-term implications of our       considerations that underscore the
                                                                    investments. we want to deliver         company’s investment decisions.
                                                                    sustainable growth and value to our     “it’s about measuring our strategic
                                                                    shareholders, not just this year, but   assets – those resource plays
                                                                    every year.”                            that are very young with many
                                                                                                            years of growth ahead – and our
                                                                                                            developed assets that generate
                                                                                                            strong returns today,” says code.

16   encana corporation / Annual Report 2010
             encana’s life cycle approach to portfolio management focuses on five key steps:



           1 strategic plan          2 annual budget /                   3 acquisitions and             4 Peer reviews              5 look backs
                                         Project approval                      divestitures
                                         requests (Pars)




these considerations might include                                                     costs and maximizing margins by       louisiana to optimize recoveries or
investments that must be made,           “Encana has a diverse portfolio               divesting non-core properties that    reduce capital or operating costs
such as drilling primarily to retain     of high-quality/low-cost natural              no longer fit future development      may provide an important insight
land and resources. with land            gas assets across Canada                      plans or have higher costs. to this   into what might work better in the
retention – as in the haynesville, for   and the U.S. Encana’s potential               end, encana divested a total of       horn river in northeastern British
example – funds are invested today       to double production volumes                  more than $880 million of assets      columbia, or vice versa,” says
to hold the promise of development       will increase shareholder value               in 2010. encana also continually      code. this knowledge-sharing, in
tomorrow. this is like investing         over time.”                                   assesses potential acquisition        turn, forms the basis for continuous
in an education fund for your            andrew fairbanks                              opportunities that would              improvement and optimization
children’s future – investing today      director, Canadian energy research,                                                 of company operations, while
                                                                                       high-grade its portfolio of
                                         Bank of america merrill lynch
for the promise of development                                                         assets and sharpen its focus          simultaneously assisting with
tomorrow. still in its formative                                                       on accumulating low-cost assets       cost reduction.
                                         “deciding which projects
years, encana’s haynesville                                                            with growth potential.                 5   lOOk backs
                                         are funded each year is an
resource play produced an average
                                         evolutionary process of continuous             4     PEER REviEws                   encana’s portfolio management
of 303 mmcfe/d in 2010. this
                                         improvement that marries encana’s             Peer reviews and look backs           process involves looking back on
volume does not reflect its potential
                                         resource inventory with the                   occur throughout the year and         each project that received approval
because recent investments were
                                         overarching strategic direction               work hand-in-hand to improve          and comparing forecast and actual
directed to land retention, rather
                                         for the company,” says code.                  results and hold operating teams      results. tracking forecast to actual
than optimization of the assets.
                                         “with an inventory as significant             accountable for forecast results.     results allows encana to look for
Over time this will change, because
                                         and robust as encana’s, there’s               Peer reviews foster a transparent,    trends in its investment decisions
encana’s haynesville asset has
                                         always more in the hopper,                    collaborative learning environment    to compare those trends across
the potential to produce more than
                                         always more opportunities that                that facilitates knowledge-sharing    the entire organization. this creates
1 Bcfe/d by 2014.
                                         we might have funded given                    and innovation among company          greater consistency in forecasting –
the selection of funded assets           different circumstances. encana’s             leaders and technical teams.          a grounding in reality that
undergoes further scrutiny through       huge resource inventory, in part,             People from different areas of        reinforces strategic direction and
the Project approval requests            is why it’s so important that we              expertise – geology, engineering,     provides increased confidence in
(Par) process. this process allows       high-grade our assets through an              geophysics, finance – roll up their   the company’s ability to
operating teams to present their         ongoing divestiture program.”                 sleeves to analyze development        achieve its goals.
business plans for each asset. the                                                     plans. this results in a compressed
                                          3   acquisitiOns and
Par outlines the deliverables and             divEstituREs
                                                                                       learning curve in areas such as
economics for each asset, allowing       encana continually assesses and               new project development and the
for comparisons across the               high-grades its asset portfolio               ability to accelerate understanding
company. this screening process          through its acquisition and                   of the potential implications of
ensures capital is allocated             divestiture program. this third step          technological innovation. “Knowing
efficiently and in alignment with        in the portfolio management life              what new technical developments
encana’s goals and strategy.             cycle focuses on reducing supply              are working in the haynesville in


                                                                                                                              Annual Report 2010 / encana corporation   17
                                            why invest in encana / because we
executive vice-President
& chief financial Officer



                            s herri
                                 BrillOn



                                            answer the tough
                                            financial questions
                                            / Q & a with sherri brillon




                                                                      q / if low natural gas prices persist                                           S
                                                                                                                                                   •	 	 econd,	we	have	hedged	
                                                                                                                                                      about 50 percent of our
                                                                           throughout 2011, will the execution of                                     expected 2011 daily natural gas
                                                                           encana’s 2011 capital commitments                                          production at an average price

                                                                           come at the expense of capital discipline?                                 of $5.75 per mcf (as at January
                                                                                                                                                      31, 2011). hedging helps
                                                                      a / capital discipline is a cornerstone of our business strategy. this          provide greater certainty to our
                                                                      means that even in a low natural gas price environment, we plan to              cash flow, thereby allowing us
                                                                      steward to the same financial metrics and preserve the strength and             to execute more consistently
                                                                      flexibility of our balance sheet.                                               on our capital and operating
                                                                      we target the company to have a debt to capitalization ratio of less than       programs and fund our
                                                                      40 percent and a debt to adjusted eBitda of less than 2.0 times. as of          projected dividend.
                                                                      december 31, 2010, encana’s debt to capitalization ratio was 31 percent         T
                                                                                                                                                   •	 	 hird,	we	have	approximately	
                            financial stewardship has
                                                                      and debt to adjusted eBitda was 1.4 times, on a trailing 12-month basis.        $300 million in joint venture
                            always been and will remain
                                                                      additionally, all of encana’s outstanding debt at year-end 2010 was             capital that partners have
                            at the forefront of Encana’s
                                                                      comprised of long-term, fixed rate debt, with an average remaining term         committed to invest on encana’s
                            investment decisions as the
                                                                      of about 13 years.                                                              behalf for 2011. leveraging
                            company pursues a sustainably
                            higher growth rate. continued             the strong financial position at year-end 2010 not only puts us in a good       third-party capital allows us to
                            focus on cost reduction and               position to fund our 2011 program, but it will also allow us to respond         lower our costs, increase capital
                            operational efficiencies will             quickly when the pricing environment improves.                                  efficiencies and bring value
                            deliver even greater shareholder                                                                                          recognition forward
                                                                      as well, we have a number of other levers at our disposal which include
                            value in the future. sherri brillon,                                                                                      sooner through increased
                                                                      the following three:
                            Encana’s chief financial Officer,                                                                                         development activity.
                            is charged with stewarding                   F
                                                                      •	 	 irst,	we	entered	2011	with	$0.6	billion	in	cash	and	cash	equivalents	
                            the company’s balance sheet                  and $5.1 billion undrawn and available under our committed bank
                            as it works towards its growth               credit facilities.
                            targets. the following is a
                            q & a with sherri.
                                                                      q/   what is your approach to share purchases?
                                                                      a / encana plans to achieve            assets. where appropriate, the use    number of shares outstanding to
                            credit Ratings                            significant production per share       of proceeds from divestitures to      about 736 million as at december
                            (as at december 31, 2010)
                                                                      growth over the next several years.    purchase encana shares allows us      31, 2010. under our current
                                                                      this per share growth is typically     to offset the decrease in per share   normal course issuer Bid, encana
                            senior unsecured debt
                                                                      achieved through production            production that results from the      has the ability to purchase up to
                            strong investment grade
                            credit ratings                            increases and by using proceeds        sale of those assets.                 36.8 million, or approximately
                            moody’s – Baa2, stable                    from divestitures of producing                                               5 percent, of the common shares
                                                                                                             in 2010, we purchased
                            s&p – BBB+, stable                        assets to purchase shares. we                                                that were outstanding at
                                                                                                             approximately 15.4 million
                            dBrs – a (low), stable                    continually seek to high-grade our                                           november 30, 2010.
                                                                                                             common shares at a total cost
                                                                      portfolio by divesting non-strategic   of about $500 million, reducing the



                     18     encana corporation / Annual Report 2010
                                                                                                                                                              with
                                                                                                                                                                     sherri BrillOn
                                                                                                                                                         q&a
                                                                                       cash flow
                                                                                  of $6 per common
                                                                                     share diluted




                                                                        $0.80 per share
                                                                         2010 annual
                                                                           dividend




q/   is encana considering lowering its                                            at tRactivE dividEnd, stROng yiEld
                                                                                   2010 annual dividend Of $0.80/share

     dividend in this low natural gas                                              Encana 2.70%
                                                                                   Peer 1 1.20%
     price environment?                                                            Peer 2 1.10%
                                                                                   Peer 3 0.80%
a / the dividend is an integral component of encana’s strategy to deliver          Peer 4 0.70%
                                                                                   Peer 5 0.50%
value to our shareholders. the distribution of a strong, stable dividend
                                                                             Peer 6 0.50%
reflects the confidence that we have in the long-term profitability of our   Peers include Anadarko Petroleum Corp., Apache Corp., Chesapeake Energy, Devon Energy,
assets and our business model. with a dividend yield of approximately        EOG Resources Inc. and Talisman Energy Inc.
                                                                             As at December 31, 2010
2.7 percent based on an nyse closing share price of $29.12 as of
december 31, 2010, our dividend yield is about twice that of our peer group
                                                                            we expect encana’s depletion rate to trend downward over time due to the
average. dividend payments are at the discretion of the Board of directors
                                                                            lower-cost nature of our current and future development programs.
and are assessed on a quarterly basis. in 2010, our dividend payments
represented an approximate $590 million payout to our shareholders.
                                                                                   q / can    you explain why you focus on
                                                                                          operating earnings versus net earnings?
q / why   is encana’s dd&a expense higher                                          a / we believe that operating earnings, rather than net earnings, are a
     than many of its u.s. peers?                                                  better measure of the company’s financial performance. encana’s net
a / this is primarily a result of        some of our u.s. peers have               earnings are inherently volatile due to unrealized gains or losses as a
differences between full cost            recorded significant cost write-          result of mark-to-market accounting for commodity price hedging and
accounting under canadian                downs due to declining commodity          foreign exchange fluctuations.
generally accepted accounting            prices experienced in 2008 and            with respect to commodity price hedging, unrealized gains or losses
Principles (gaaP) and united             2009 and, consequently, have              as a result of mark-to-market accounting reflects the estimated change
states (u.s.) gaaP. Both sets of         lower depletion rates resulting in        in value of outstanding hedge positions from period to period. this
accounting principles require tests      decreases in depletion, depreciation      includes changes in the value of outstanding contracts due to volatility in
to be performed where unamortized        and amortization (dd&a) expense           commodity prices, the reversal of previously recognized gains or losses
capitalized costs (property, plant and   going forward. to illustrate, under       that are realized during the current period, as well as any future estimated
equipment (PP&e)) are compared           canadian gaaP encana’s 2010 net           gains or losses from commodity price changes on positions entered
to prescribed calculations of the        earnings are reported as $1,499           into during the current period. unrealized mark-to-market gains or
value of reserves quantities. if total   million ($2.03 per share) while under     losses after tax are included as part of net earnings, which management
PP&e exceeds the value of reserves       u.s. gaaP it would be $2,343              believes reduces the comparability of the company’s underlying financial
quantities, then it is written down      million ($3.17 per share) with the        performance between periods.
to the value of those reserves. the      greatest impact being associated
                                                                                   u.s./canadian dollar exchange rate fluctuations also add volatility to net
primary difference in calculating the    with dd&a. for more detail, impacts
                                                                                   earnings because of the change in value of encana’s canadian held
value of reserves is that canadian       on encana’s results utilizing u.s.
                                                                                   u.s. dollar denominated debt.
gaaP utilizes forecast commodity         gaaP accounting methods have
prices on an undiscounted basis          been disclosed in note 21 of our          unrealized gains and losses do not represent actual cash movements.
whereas u.s. gaaP requires the           consolidated financial statements         in calculating operating earnings, the effects of unrealized gains and
use of historical prices which are       to provide readers with improved          losses after tax are removed from net earnings, resulting in a better
on a discounted basis. as a result,      comparability to our u.s. peers.          representation of the company’s earnings performance.



                                                                                                                              Annual Report 2010 / encana corporation                 19
Our latest major land acquisition in southeast Texas, named the Brent Miller Field, honours a late
employee whose work embodied our reputation as a first-mover on promising opportunities.
Attracting, retaining and honouring the best and brightest people, as staff, contractors and service
providers, is at the heart of our business strategy. Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com
                                                                                        take advantage




                                            a culture of
resource
play hub
evolution
/ continuous


                                            innovation
improvement /24




completion
costs drop
60 percent
/ the horn
river shale /25                                             delivering high performance
cost savings     pioneering a model
in the           / where innovation and efficiency meet                                                 /22
haynesville      encana’s resource play hub strives to reduce operating and capital costs while
/ setting        continually improving operating efficiencies to maximize the margins realized on every
encana apart /26 single gas molecule produced.

                           company-wide                                          technology
                           collaboration                                         in action
                           / knowledge-                                          / haynesville
                           sharing      /27                                      geological
                                                                                 operations
                                                                                 pilot project /28
                           www.encana.com/operations/hub/




                                                                                  Annual Report 2010 / encana corporation   21
                                               a culture of innovation / we are working at


                                               pioneering
                                               a model
                                               / where innovation and efficiency meet




                                               Encana’s resource play hub model strives to reduce operating and
                                               capital costs while continually improving operating efficiencies
                                               to maximize the margins realized on every single gas molecule
                                               produced. implemented across Encana’s entire north american
                                               asset portfolio, the resource play hub is an innovative and efficient
                                               production model tailor-made to reduce natural gas production
                                               costs and environmental impact.

                                               what is a REsOuRcE Play hub?
                                               a resource play hub is created when multiple deviated or horizontal wells
                                               are simultaneously drilled, completed, tied in and produced from a single
                                               surface location, or pad, where encana, along with its service providers,
                                               can optimize every part of the process. the resource play hub toolbox
                                               includes fit-for-purpose drilling and hydraulic fracturing equipment,
                                               standardized processes, new technology innovation, peer reviews and
                                               vendor contracts aligned with efficiency gains. encana’s first resource
                                               play hub was pioneered in the Piceance Basin in 2005 where, due to
                                               challenging topography, a single pad with 52 deviated vertical wells was
                                               developed. company-wide expertise has advanced so much since then
                                               that a single resource play hub in the horn river, for example, is designed
                                               to drain an area of about four to six square miles. at the heart of this
                                               design are 16 long reach, multi-stage horizontal wells with roughly
                                               440 hydraulic fractures in total, where each fracture essentially functions
                                               as a vertical well would, but at a fraction of the cost.

                                                                                          how a resource play hub ultimately
                                               “Encana’s razor-sharp focus on             operates, or even looks, varies
                                               driving down its cost structure            depending on the unique geological
                                               via its gas manufacturing                  and above-ground features existing
                                               process is right on the mark.”             at each of encana’s plays. the
                                               greg pardy                                 fundamental goals of all resource
                                               managing director,                         play hubs, however, remain
                                               Co-head, global energy research
                                               rBC Capital markets                        unchanged: per unit cost reduction,
                                                                                          a focus on efficiency gains and
                                               further innovation combined with minimal surface disturbance. this highly
                                               disciplined approach has already begun to pay off; in 2010, encana
                                               reduced overall operating cost guidance by more than 10 percent while its
                                               corporate supply cost – the flat nymeX gas price that yields a 9 percent
                                               after-tax rate of return – fell to $4.05 per mcf.




22   encana corporation / Annual Report 2010
“Learning in parallel equals an accelerated
rate of production. Through sharing and
collaboration, seeing what works for other
teams and what doesn’t, each team
can increase the efficiency of its own
resource play hub through the knowledge
accrued and shared company-wide. As
a concept, the resource play hub is very             mike graham
much about tapping into the talents and              executive vice-president &
                                                     president, Canadian division
expertise of our people.”


along with reducing costs and optimizing efficiencies, encana’s resource
play hubs are designed to improve environmental and safety performance.
this disciplined method means rigs and hydraulic fracturing crews need
only travel a short distance from task to task, while supplies can be
delivered in bulk to centralized resource play hub locations. the net result
is enhanced environmental and safety performance markers – reduced
vehicle traffic and emissions, less movement of fluids and chemicals,
suppression of dust – which, when taken together, demonstrate the
resource play hub’s importance in maintaining encana’s social licence
to operate. in the north louisiana operating area, to cite one example,
driving and injury risk has been reduced by 83 and 66 percent,
respectively, for drilling and completion due to decreased heavy truck trips.

thE REsOuRcE Play hub Of thE futuRE
most cost improvements to date using the resource play hub model have
resulted from below-ground technical advancements. there remains
tremendous opportunity to optimize and streamline the above-ground
equipment and logistics, with possible further savings achieved by
converting fee-for-service mobile equipment into a centralized facility. in
much the same way encana developed fit-for-purpose drilling equipment
a few years ago, the company has engaged industry players to develop
fit-for-purpose completions equipment that is designed and optimized for
specific reservoir characteristics. in the haynesville for example, where
encana is drilling high-pressure/high-temperature wells, equipment that
is durable enough to sustain a 24-hour per day fracturing operation is
needed. simultaneous with this initiative, encana is working with service
providers to establish longer-term work commitments that provide
equipment and crew certainty, efficiency and cost advantages, as well as
control and direction of environment, health and safety standards.




                                                                                    Annual Report 2010 / encana corporation   23
     a culture of innovation / decades of experience


     resource play hub
     evolution
     / cOntinuOus imPrOvement




     resource play hub has been pioneered by encana
     through decades of innovation and knowledge-sharing.
          EaRly ORigins




                                   shallow cbm                                                Jean marie
                                   •	repeatable processes                                     •	 technological advance with horizontal drilling
                                   •	 incremental savings achieved                               and 3d seismic methods
                                      over thousands of operations                            •	level loaded programs




                                                                  Piceance
                                                                  •	multi-well pads
                                                                  •	 repeatable execution with
                                                                     a concentrated resource




                                   Jonah
                                   •	concentrated resource
                                   •	 technical advance with reservoir
                                      understanding and well spacing
                                                                                                                                                        futuRE EvOlutiOn


                                                                  haynesville and horn River

                                                                                                                                                                  cuRREnt
                                                                  •	concentrated resource
                                                                  •	repeatable execution
                                                                  •	level loaded program
                                                                  •	horizontal wells
                                                                  •	multi-well pads




     resource play hub’s physical characteristics evolved from early origins in southern alberta shallow gas wells to the 21st-century model of natural gas production,
     a	model	sure	to	evolve	in	coming	years	as	innovations	and	efficiencies	are	added	through	technical	expertise	and	knowledge-sharing.




24   encana corporation / Annual Report 2010
a culture of innovation / developing efficiencies


completion costs
drop 60 percent
/ the hOrn river shale




in the horn river of northeastern British columbia, the resource play hub approach                                             efficiency. the other half focuses on
was implemented immediately after the successful completion of a 2009 down-spacing                                             continuous operations. due to horn
                                                                                                                               river’s remoteness and minimal
pilot project that tested the commerciality of pad development.
                                                                                                                               surface constraints, resource play
                                                                                                                               hub application in the play means
Building on this successful initiative,     “we have seen our costs drop              bit selection and continuous             24-hour operations, centralized,
encana’s 2010 horn river program            dramatically as we have moved into        improvement,” says Kevin smith,          modular facilities and full use of
was designed to drill long reach,           the resource play hub process.            vice-President of the fort nelson        on-site horsepower for
multi-stage horizontal wells that           On the drilling side, we have             Business unit & canadian                 completions. this systematic
ultimately developed more of the            reduced our total unit costs of           unconventional gas exploration.          approach allows for year-round
resource, more efficiently, at a            horizontal lateral length by more                                                  operations, despite harsh winters
                                                                                      lowering the cost per lateral foot
lower cost and all from a single            than 45 percent through an                                                         in the northern locale that have
                                                                                      drilled is one half of the recipe for
surface location.                           integrated team approach, better                                                   historically slowed activity.



“On the completions side,                   hORiZOntal multi-wEll Pad
costs have dropped almost                   reducing the surface imPact: gaining OPeratiOnal efficiency

60 percent over the past
three years to an actual 2010
                                                                               Resource play hub site
completion cost per fracture                 1.24 miles
of about $450,000. The                         (2 km)
main drivers have been more
hydraulic fractures per pad                                       3.73 miles
and 24-hour operations to                                           (6 km)

spread out the fixed costs,                                                                1.68 miles
having an inventory of fractures                                                            (2.7 km)
ready to pump to avoid non-
productive time and the use
of a subsurface, non-potable
water source.”
Kevin smith
vice-president, fort nelson Business Unit
& Canadian Unconventional gas exploration




/ 1 acre of surface disturbance to          / the pad site at 984 x 820 feet          / on the current pad we will drain 4.6   / 25 fracs x 16 wells = 400 fracs
access 164 acres of reservoir.              (300 x 250 metres) is about 18 acres.     sections or 2,950 acres of reservoir.    from one pad.




                                                                                                                                 Annual Report 2010 / encana corporation   25
     a culture of innovation / drilling down to


     cost savings in
     the haynesville
     / set ting encana apart




                                               three unique aspects of encana’s operations in the haynesville set the company
                                               apart from its competitors – drilling efficiencies, the design of experiment process
                                               and hydraulic fracturing efficiency.

                                               dRilling EfficiEnciEs                      dEsign Of ExPERimEnt                    hydRaulic fRactuRing
                                                                                                                                  EfficiEncy
                                               the resource play hub multi-well           haynesville completion designs
                                                                                                                                  in 2009, encana pumped
                                               pad approach in key areas of               have continued to be optimized
                                                                                                                                  420 stages in the haynesville
                                               the haynesville has resulted in            through the use of the design
                                                                                                                                  with an average of one hydraulic
                                               significant drilling cost reductions. in   of experiment (dOe) process,
                                                                                                                                  fracturing crew. in 2010, 1,560
                                               the mid-continent Business unit’s          which requires tight control on
                                                                                                                                  stages were pumped with an
                                               focus area in red river Parish,            certain completion parameters
                                                                                                                                  average of two crews. among
                                               wells drilled in 2009 averaged $5.8        while systematically varying others
                                                                                                                                  the reasons for this gain in
                                               million to case and suspend versus         to determine their impact on
                                                                                                                                  efficiency were equipment move
                                               $5.2 million in 2010, a 10 percent         well performance. the resultant
                                                                                                                                  times decreased by more than
                                               reduction. likewise, in the de soto        standardized completion design
                                                                                                                                  60 percent, pump-down times
                                               Parish focus area, teams averaged          delivered a significant improvement
                                                                                                                                  were reduced by 45 percent and
                                               $5.2 million in 2009 to case and           in cost management, contributed
                                                                                                                                  operational non-productive times
                                               suspend, compared to $4.6 million          to increased operational fracturing
                                                                                                                                  were cut by 20 percent. through
                                               in 2010, an 11 percent reduction.          efficiency and increased the
                                                                                                                                  these and other initiatives, the
                                               these significant cost reductions          estimated ultimate reserves or
                                                                                                                                  number of stages pumped per
                                               are attributed to several key              recovery (eur) by 9 percent per
                                                                                                                                  month increased 105 percent from
                                               efficiencies and performance gains.        1,000 feet of lateral length. it also
                                                                                                                                  82 in January to 168 in december
                                               multi-well pads used in conjunction        resulted in the use of less expensive
                                                                                                                                  while utilizing two crews
                                               with encana’s fit-for-purpose              proppant without observing
                                                                                                                                  throughout the year.
                                               rigs with skidding capability have         any detrimental effects on eur,
                                               reduced the overall surface footprint      reducing proppant costs by more         through the combination of
                                               and pad cost, and enabled a batch-         than 45 percent.                        successfully implementing the dOe
                                               set approach to drilling as well as a                                              and the hydraulic fracturing crew
                                               skidding alternative to traditional rig                                            efficiency improvements, a
                                               moves. managed-pressure drilling                                                   122 percent price increase in
                                               has resulted in significant rate of                                                services and product was held to a
                                               penetration increases, reducing                                                    modest completion cost increase of
                                               spud to rig release times by three                                                 5 percent per 1,000 feet completed.
                                               to five days.




26   encana corporation / Annual Report 2010
a culture of innovation / vibrant teamwork


company-wide
collaboration
/ knowledge-sharing


formed in 2010 as a subgroup of encana’s shale
technology exchange Partnership (steP), encana’s
resource play hub team is helping to drive a dramatic
shift in an already vibrant knowledge-sharing culture.
cross-border collaboration – peers sharing knowledge
and experience – is this team’s mandate. “we have to
recognize that the only way we’re going to be the lowest-
cost producer in north america is by cross-border
collaboration and sharing of new knowledge and best
practices,” says mark taylor, horn river team lead and                    “We saw the spirit of partnership and
leader of the steP resource play hub subgroup.                            knowledge exchange come full-circle.
                                                                          The Piceance has a mature resource play
while healthy competition between business units drives continuous        hub program and they helped us get the
improvement at each of encana’s resource plays, sharing technology,       Haynesville going. After coming back to
innovation and knowledge via peer reviews is embedded in the              help again, they were able to discover
company’s culture and business practices. this culture of collaborative   some modifications that would increase
learning has been further enhanced when the resource play hub             efficiencies in their own process. This was          Jeff wojahn
subgroup recently nominated top company talent to lead the inaugural      very gratifying for both programs.”                  executive vice-president &
go team, a formal working group comprised of experienced personnel                                                             president, Usa division

with the primary purpose of expediting resource play hub operations.

the go team made its first stop in the mid-continent Business unit’s      hub locations, then one day in sabine visiting three locations. the go
texas sabine operating area. in north louisiana (nla), the haynesville    team shared its members’ expertise with the sabine team and left with
play has seen significant advancement in the resource play hub model.     knowledge and perspective from both nla and sabine that, in turn,
go team members spent one day in nla visiting active resource play        may also be applied elsewhere in the company, the horn river or the
                                                                          montney, for example.

                                                                          cOllabORatiOn, knOwlEdgE-shaRing and innOvatiOn
                                                                          “a key goal for encana is to accelerate the pace of learning and to drive
                                                                          down the supply cost of our resource play hubs. although each of these
                                                                          plays will require a unique development approach to maximize value
                                                                          creation, they have more similarities than differences. as a result, the
                                                                          concepts and operating practices around execution efficiency, integrated
                                                                          supply management strategies and technology improvements span
                                                                          the corporation. it is imperative that we harness the collective ideas,
                                                                          expertise and talents of our people across the organization. we are
                                                                          transferring and sequentially implementing our successes across the
                                                                          company in real time. this teamwork is essential in order to keep
                                                                          encana at the leading edge of performance,” says wojahn.

                                                                          encana divides resource play hub initiatives into three levels: the micro
                                                                          level, which addresses pad development; the macro level, which focuses
                                                                          on the entire field development and resources for key initiatives, such
                                                                          as water management; and the enterprise level, which strengthens an
                                                                          already strong culture of knowledge-sharing across plays.


                                                                                                                 Annual Report 2010 / encana corporation    27
                                                                           a culture of innovation / sharing knowledge


                                                                           technology
                                                                           in action
                                                                           / haynesville geological
                                                                           operations pilot project




     initiated as a joint effort between                                                                       the main objective is to better
     haynesville and horn River                                                                                manage the high rig count and
     geologic staff, the haynesville                                                                           create standard procedures for
     geological operations                                                                                     geological input during the drilling of
                                               C
                                               AL
                                                   G




     pilot project highlights the                                                                              wells. in the haynesville, well path
                                                   AR
                                                       Y




     knowledge-sharing that takes                                                                              changes are often required with little
     place across Encana’s resource                                                                            advance notice and are based on
     plays and are central to the                                                                              real-time data.
     resource play hub.
                                                                                                               well monitoring takes place via a
     in a structurally complex play such                                                                       remote geological steering centre in
     as the haynesville, characterized                                                                         calgary, complementing the
                                                             2,
                                                           11 00
                                                             (3

                                                              3




     by faulting and large dip changes,                                                                        on-site monitoring by the
                                                                ,4

                                                                 m m)
                                                                   ile
                                                                       s
                                                                       k




     24-hour, seven-day geological                                                                             haynesville geologic staff. the
     monitoring manages and often                                                                              pilot project initially ran eight rigs
     eliminates problems that can lead to                                                                      from the calgary control room,
     out-of-zone drilling and decreased                                                                        expanding its support function to
     production. it amounts to an extra                                                                        running 24 haynesville rigs in 2010,
     set of eyes that helps to decrease                                                                        while at the same time providing
     costs and improve production rates.                                                                       well monitoring for encana’s
                                                                                                               michigan collingwood shale play
                                                                                                               drilling team.
                                                                                                                           H
                                                                                                                            AY
                                                                                                                              N
                                                                                                                               ES
                                                                                                                                  V
                                                                                                                                  IL
                                                                                                                                   LE




                                                                           success measurements of the pilot
                                                                           project include:


                                                                             b
                                                                           •		 etter	communication	between	
                                                                             geology and drilling
                                                                           	 		ewer	operational	issues	
                                                                           •f
                                                                              with wells
                                                                           •	reduced	drilling	time	and	costs




28   encana corporation / Annual Report 2010
When 13-year-old Maggie took the initiative to compare natural gas to coal for her school
project, we gave her an interview with Eric Marsh, our Executive Vice-President. Learning that
natural gas produced 50 percent fewer CO2 emissions than coal sold Maggie on her energy
future. Encana now uses Maggie’s story to teach other kids about cleaner, greener options.
Take a closer look. We are Encana.




Search for Maggie’s Energy Moment at www.youtube.com/encana
     taking the lead




       the
                                                                                                          canadian
                                                                                                          natural gas
                                                                                                          vehicle summit
                                                                                                          / showcasing


       natural gas
                                                                                                          the next
                                                                                                          transportation
                                                                                                          fuel         /33



       economy
       meeting the need
       for cleaner fuel

     the common sense alternative / clean                                                      red river
     and affordable                                                                        /31 cng filling
                                                                                               station / making
     encana’s natural gas economy team made significant progress in 2010 along the road
     to creating a cleaner, more economically viable energy future powered by natural gas.     natural gas
                                                                                               accessible     /34

                                                                                      changes in
                                                                                      policy /
                                                                                      replacing
                                                                                      coal with
                                                                                      natural gas   /36



     hitting the road with lng                                                                            inside the
     trucKs / cleaner and more                                                                            energy industry
     affordable                                                                 /35                       / drilling for
                                                                                                          gas with gas /34
                                                                                                          coal retirement
     endnotes in articles can be
     referenced on page 135.                   www.encana.com/operations/gas/
                                                                                                          momentum      /36

30   encana corporation / Annual Report 2010
                                                             the natural gas economy / increasing demand

  The mandate of Encana’s Natural Gas                        the common sense
Economy team is to showcase, through
advocacy and pilot projects, that natural                    alternative
                                                             / clean and affordable
      gas is the domestic solution for a
secure energy future, a common sense,
 economic alternative for transportation
                 and power generation.
                                                             through both grassroots                  more affordable and cleaner
                                                             community efforts and high-level         fuel alternative.
                                                             discussions with key policy-
                                                                                                      in addition to its own fleet of natural
                                                             makers, the team has strengthened
                                                                                                      gas vehicles, encana continues
                                                             the building blocks of a new energy
                                                                                                      to walk the talk in all aspects of
                                                             portfolio for north america, one
                                                                                                      its operations. in a truly reciprocal
                                                             that is cleaner for the environment.
                                                                                                      relationship, encana also uses
                                                             what are the economic benefits
                                                                                                      natural gas to power drilling rigs in
                                                             of this new portfolio? in building
                                                                                                      some areas and to meet some of
                                                             new infrastructure and creating
                                                                                                      its power generation requirements,
                                                             new markets for natural gas, these
                                                                                                      as detailed in the series of stories
                                                             projects are also contributing to
                                                                                                      on the following pages. encana has
                     “As the cleanest-burning fossil         stronger economies in canada
                                                                                                      taken a leading advocacy role to
                     fuel, natural gas represents            and the united states. every
                                                                                                      make natural gas the centrepiece
                     an affordable, readily available        one percent increase in natural
                                                                                                      of north america’s energy portfolio.
                     source of energy that allows            gas production creates up to
                                                                                                      the potential resulting legislation
                     us to hit the ground running            35,000 (2) jobs. in addition, the vast
                                                                                                      points the way forward for cleaner-
                     as we aim to achieve the                domestic abundance of natural
                                                                                                      burning natural gas to replace
                     emissions reduction targets             gas offers a secure, made-in-north
                                                                                                      coal as the preferred fuel in the
                     our society has set. Tapping            america energy solution, potentially
                                                                                                      power industry.
                     into the vast reservoirs of North       reducing foreign oil dependence
                                                             and the massive wealth transfer          the education and advocacy
                     America’s natural gas supply
                                                             these imports entail. displacing         efforts of the nge team have
                     – a supply estimated to last
                                                             oil for transportation purposes          been undertaken on a simple
                     100 years (1) or more based on
                                                             could positively impact the north        premise; namely that natural gas
                     current consumption rates –
                                                             american trade balance by a              makes the most sense as north
                     will strengthen the domestic
                                                             staggering average of $160 billion       america’s fuel of choice.
                     economy and wean us off of
                                                             every year. (3)                          it makes the most sense in terms
                     foreign oil. Natural gas makes
                                                                                                      of job creation and added value
                     sense for the environment               encana is committed to leading
                                                                                                      to the north american economy.
                     and the economy in meeting              by example by converting its
                                                                                                      it makes the most sense as the
                     North America’s growing                 own vehicle fleets to natural gas
                                                                                                      preferred fuel for transportation and
                     energy needs.”                          and building the necessary filling
                                                                                                      power generation to dramatically
                     eric marsh                              stations to demonstrate the
                     executive vice-president, natural gas
                                                                                                      reduce greenhouse gases. and
                                                             fuel’s utility as a transportation
                     economy & senior vice-president,                                                 it makes the most sense both
                     Usa division                            alternative. to this end, the
                                                                                                      environmentally and to consumers’
                                                             company has already witnessed a
                                                                                                      pocketbooks. with all these factors
                     encana’s natural gas economy            shift in the transportation sector,
                                                                                                      considered, natural gas makes the
                     (nge) team made significant             including recent initiatives by major
                                                                                                      most sense as a sustainable energy
                     progress in 2010 along the              trucking companies interested in
                                                                                                      solution for future generations.
                     road to creating a cleaner,             converting their fleets to this safe,
                     more economically viable energy
                     future powered by natural gas.
                                                                                                       Annual Report 2010 / encana corporation   31
From ice chillers to plastics to polyester fibre, natural gas is an unignorable part of your everyday
life. Modern manufacturing processes turn this clean, affordable, abundant resource into solid
products – building both innovation and economic stability. Meeting growing global demand calls
for new ways of looking at things. Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com
                                                                                                                              opportunities for
                                                                                                                               market growth
the natural gas economy / driving the need


canadian natural
gas vehicle summit
/ showcasing the next transportation fuel




the transportation sector is the single largest contributor              the shift to natural gas is already occurring in the transportation
                                                                         sector across north america, as seen in the examples below.
to greenhouse gas emissions, making it all the more urgent
to create a low-carbon economy based on natural gas.                     government                                   effectively combining their
                                                                         •	 	 	report	facilitated	by	Natural	
                                                                            A                                         strength in innovation and safety.
dropping the emissions               the service sector, upstream           Resources	Canada	confirms	
                                                                                                                   ngvs on the road
odometer and fueling the north       oil and gas producers and              policy-makers recognize the
                                                                                                                   •	 twelve clean-burning
american economy were the            trucking companies.                    competitive and environmental
                                                                                                                      compressed natural gas (Cng)
                                                                            advantages of natural gas usage
key themes driving the inaugural                                                                                      ford taxis serve the City of
                                     the event focused on market            in the medium- and heavy-duty
encana-hosted canadian natural                                                                                        Chicago as a part of taxi
                                     growth opportunities in a              transportation sector. the report,
                                                                                                                      medallion management’s goal of
gas vehicle (ngv) summit held in                                            titled natural gas Use in the
                                     canadian transportation sector         Canadian transportation sector
                                                                                                                      reducing emissions by
calgary on October 28, 2010.                                                                                          25 percent. (5)
                                     predominantly fueled by less           deployment roadmap, brought
the first of its kind in canada,     environmentally friendly gasoline      together stakeholders from                I
                                                                                                                   •	 	n	January	2011,	Dallas	Area	
                                                                            government and industry, including        rapid transit unanimously
the summit attracted more than       and diesel.                                                                      approved the purchase of 452
                                                                            reps from encana, to discuss
100 delegates from municipalities,                                          strategies and recommendations            buses powered by Cng. the
                                                                            for increasing natural gas usage.         buses will begin to serve dallas
                                                                                                                      and 12 surrounding cities in 2013.(6)
                                                                            T
                                                                         •	 	 he	Government	of	Quebec	has	
                                                                            introduced policies to foster a           I
                                                                                                                   •	 	n	its	continued	efforts	to	reduce	
                                                                            greener transportation future             air pollution in one of america’s
                                                                            by offering incentives for trucks         smoggiest regions, la County
                                                                            or	tractors	that	run	on	liquefied	        metropolitan transportation
                                                                            natural gas (lng).                        authority retired its last diesel
                                                                                                                      bus	in	January	2011.(6)
                                                                         infrastructure
                                                                         •	 	 he	City	of	Los	Angeles	is	
                                                                             T                                        I
                                                                                                                   •	 	n	December	2010,	The	Kansas	
                                                                             currently building the largest lng/      City public school district
                                                                             lCng station in the world to             purchased 47 thomas Built
                                                                             serve its growing fleet of lng-          hdX rear engine buses,
                                                                             powered vehicles.(4)                     powered by Cng. (7)
                                                                                                                      I
                                                                         •	 	 erasen	Gas,	the	largest	distributor	 •	 	n	February	2011,	UPS	added	
                                                                            T
                                                                            of natural gas in British Columbia,       48 lng 18-wheeler trucks to its
                                                                            will fuel the vedder transport            hubs in ontario, California and
                                                                            natural gas fleet by constructing         las vegas, nevada. a rep from
                                                                            a lng refueling station in                Ups said lng is the only long-
                                                                            abbotsford, British Columbia              term and viable option to diesel.(8)
                                                                            in 2011.                                  T
                                                                                                                   •	 	 he	purchase	of	50	Peterbilt	
                                                                                                                      386 lng trucks makes vedder
                                                                         original equipment manufacturers
                                                                                                                      transport ltd., servicing southern
                                                                            F
                                                                         •	 	 or	the	eighth	consecutive	year,	
                                                                                                                      British Columbia, one of the
                                                                            the american Council for an
                                                                                                                      world’s most environmentally
                                                                            Energy-Efficient	Economy	named	
                                                                                                                      clean transporters.
                                                                            the honda Civic gX natural gas car
                                                                            the greenest Car of 2011, beating         C
                                                                                                                   •	 	 oinciding	with	Encana’s	
                                                                            out other alternative-fuel cars like      inaugural Canadian natural gas
                                                                            the nissan leaf and toyota prius.         vehicle summit in october 2010,
                                                                                                                      robert transport purchased
                                                                            T
                                                                         •	 	 wo	leading	providers	of	alternative	
                                                                                                                      180 peterbilt lng trucks from
                                                                            fuel systems for heavy-duty
                                                                                                                      westport innovations inc.
                                                                            vehicles, faB industries and
                                                                                                                      (see story on page 35).
                                                                            enviromech industries, merged
                                                                            to form agility fuel systems,

                                                                                                                   Annual Report 2010 / encana corporation    33
     the natural gas economy / building the infrastructure


     red river cng
     filling station
     / making natural gas accessible




     natural gas costs, on average, one-third less than conventional
     gasoline at the pump. (9) with more than 150 ngv models now being
     manufactured (10) and a growing network of fueling stations, ngvs are
     an ideal solution to north america’s growing petroleum dependence.
     changing consumer habits when it          such was the case on
     comes to the transportation sector        november 30, 2010, when
     requires more than education              encana officially opened an ngv
     and advocacy. sometimes it                fueling station in louisiana’s red
     involves building the necessary           river Parish. it’s another example       natural gas vehicles
     infrastructure to support a more          of encana demonstrating through
                                               action on its mandate by making          there are currently more than           Unlike gasoline, Cng dissipates into the
     sustainable energy equation,
                                                                                        110,000 ngvs and 900 ngv fueling        atmosphere in the event of a vehicular
     one that’s good for the economy           natural gas more accessible as a
                                                                                        stations in the U.s., with more         accident, rather than pooling on the
     and the environment, as well as           transportation fuel.
                                                                                        being added.(11)                        ground	and	creating	a	potential	fire	
     demonstrative of the practicality                                                                                          hazard. in addition, the fuel storage
                                               the red river cng filling station        ngvs work similarly to gasoline-
     and accessibility of natural gas as                                                                                        cylinders used in ngvs are sealed
                                               is the first of five that encana plans   powered vehicles but with one notable
     a transportation fuel.                                                                                                     to prevent any fuel spillage or
                                               to build to service its ngv fleet,       exception: enhanced safety.
                                                                                                                                evaporative losses.
                                               the rest of which are scheduled to
                                               come on-stream in 2011.



     natural gas offers a more environmentally sound fuel to drive our
     cars, heat our homes and, in a truly reciprocal relationship, drill for
     more natural gas.

     an innovative 2010 project in encana’s mid-continent Business unit
     made the notion of running a drilling rig on the cleanest-burning fossil
     fuel go from pipe dream to reality in little more than a year.

     Project leaders chose a portable system whereby fuel is trucked to
     drilling locations. the group used lng, which at nearly 100 percent
     methane, offered the cleanest solution and allowed for sufficient on-site
     fuel amounts with a manageable footprint.

     ultimately, two rigs in louisiana, ensign 150 and 151, were deemed
     appropriate candidates for natural gas conversion. after six months of
     work, the first lng system was completed in June 2010 and ensign’s                    the natural gas economy / louisiana’s ensign 150 and 151
     generator skids were retrofitted with natural gas engines. the generator
     skids and lng system then met in mont Belvieu, texas – and it was a
     match made in heaven. testing ended July 20 and the equipment was
                                                                                           inside the energy
     moved to the shreveport, louisiana area. On august 27, the project
     recorded another milestone when ensign 151, running on lng, officially
                                                                                           industry
     spudded a well in northern louisiana.                                                 / drilling for gas with gas


34   encana corporation / Annual Report 2010
the natural gas economy / delivering the fuel of choice


hitting the road
with lng trucKs
/ cleaner and more affordable




natural gas is becoming a fuel of choice in the heavy-duty truck
corridors of north america, which ship us the goods necessary for
our daily lives. it’s the common sense solution for the transportation
sector to reduce emissions through the use of an affordable fuel –
and this message has translated into meaningful actions.


On October 28, 2010, westport           companies with an estimated                       distributor. the company plans
                                                                                                                                   natural gas travelling roadshow
innovations inc. (westport)             1,100 tractors and 2,300                          to install three lng filling stations
announced (12) it had received          employees. the new trucks will be                 along the Ontario-Quebec 401/            during the spring and summer of 2010,
a purchase order from robert            used on line haul routes between                  highway 20 corridor – a critical first   encana teamed up with westport
transport for 180 Peterbilt lng         montreal and Quebec city, and                     step in realizing encana’s vision        to stage a travelling roadshow
trucks. all will be equipped with the   montreal to toronto.                              for an ngv highway network in            on the merits of natural gas as a
                                                                                          canada. this eastern thoroughfare        transportation fuel. an 18-wheel,
westport hd system, consisting of
                                        fueling the new fleet is gaz                                                               heavy-duty truck fueled entirely by
the gX 15-litre engine, proprietary                                                       would complement an envisioned
                                        métro transport solutions, a                                                               lng was displayed at various stops in
westport fuel injectors, lng fuel                                                         western ngv highway network
                                        wholly owned subsidiary of gaz                                                             Colorado,	Utah,	Kansas	and	Wyoming,	
tanks with integrated cryogenic fuel                                                      linking the cities of calgary,           racking up nearly 3,500 miles (5,633
                                        métro, Quebec’s main natural gas
pumps and associated electronic                                                           edmonton and vancouver.                  kilometres) during its four-month tour.
components to facilitate robust                                                                                                    part of the initiative included a ride
performance and reliable operation.     “Operating natural gas trucks helps reduce one of our largest                              and drive program where interested
                                                                                                                                   organizations test drove the truck
robert transport, based in              input costs and reduces our carbon footprint. This is a win-win
                                                                                                                                   for two days as part of their daily
Boucherville, Quebec, is one of         for both the environment and our company.”
                                                                                                                                   operations. major distribution
canada’s largest trucking-for-hire      claude robert                                                                              companies such as ensign drilling and
                                        president & Ceo, robert transport
                                                                                                                                   the dairy farmers of america, as well
                                                                                                                                   as several municipalities and counties,
“This is the single largest order       clEanER, hEalthiER aiR
                                        emissiOns reductiOns fOr natural gas vehicles                                              partook of this opportunity to discover
for LNG trucks powered by                                                                                                          how to lower their greenhouse gas
                                        Carbon dioxide 20-30%                                                                      emissions by up to 22 percent with no
Westport HD. It’s evidence
                                        Carbon monoxide 70-90%
                                                                                                                                   loss	in	efficiency.
that natural gas is gaining             Sulphur dioxide 99%
momentum as a mainstream                Nitrogen oxide 75-95%                                                                      “it’s not enough to just tell people that
                                                                                                                                   natural gas is the only alternative fuel
transportation fuel in Canada.”         Particulate matter 90%
                                        Volatile organic compounds 89%                                                             comparable to diesel that can move a
david demers                                                                                                                       heavy-hauler; they want to experience
                                        Source: NGVAmerica, Encana estimate, Environmental Protection Agency (EPA)
Ceo, westport innovations inc.
                                                                                                                                   the phenomenon for themselves,” says
                                                                                                                                   david hill, vice-president, natural gas
                                                                                                                                   economy operations.




                                                                                                                                    Annual Report 2010 / encana corporation    35
                                                                                              the natural gas economy / coal retirement momentum


                                                                                              inside the energy
                                                                                              industry
                                                                                              / coal retirement momentum
     encana’s advocacy efforts to make natural gas
     the preferred fuel for power generation have made
     policy-makers sit up and take notice.

     the natural gas economy / colorado’s clean air, clean jobs act
                                                                                              Encana continues its advocacy efforts in collaboration with anga

     changes in policy                                                                        (america’s natural gas alliance), an important coalition of natural
                                                                                              gas companies, to promote the benefits of natural gas power
     / rePlacing cOal with natural gas                                                        generation as an environmentally progressive and cost-effective
                                                                                              alternative to existing and planned coal-fired power generation.

     colorado’s clean air, clean               achieved by combined cycle natural             coal retirement announcements increased significantly in 2010 across
     Jobs act (house bill 1365),               gas-fired power plants, of which               north america in response to stringent environmental regulations. among
     signed into law on april 19, 2010,        encana’s cavalier Power station                the largest were american electric Power’s december 2010 announcement
     is designed to retire aging and           is an example.                                 of approximately 6,000 megawatts(15) and transalta’s november 2010
     inefficient high-emitting coal-           the canadian government                        announcement of up to 800 megawatts(16) of coal-fired power plant
     fired generation units along the          indicated the legislation will likely          capacity. dozens of other announcements were made throughout 2010.
     colorado front-range and to               be introduced in late 2011 to                  the u.s. environmental Protection agency’s (ePa) regulatory calendar
     provide primary consideration             phase out the 51 coal-burning                  is rapidly evolving and filled with rules regulating harmful emissions such
     to natural gas as the                     power plants currently operating in            as nOX , sOX , fine particulates, mercury and greenhouse gases. also
     replacement fuel.                         canada. Of those, 33 are slated to             being addressed are other environmental challenges that face coal-fired
     under the framework of reducing           reach the end of their economic life           electricity generation such as coal combustion byproducts and cooling
     harmful emissions such as nitrogen        cycles by 2025.(14)                            water structures. the ePa will finalize these regulations over the next few
     oxides (nOX ), sulphur oxides (sOX )                                                     years, and the new rules are expected to have a profound impact on the
     and mercury, Bill 1365 creates a          Encana’s cavalier Power station                electricity industry.
     framework whereby the colorado
                                               encana’s Cavalier power station                many existing coal plants are vulnerable to retirement where
     Public utilities commission (Puc)
                                               demonstrates why clean, affordable,            environmental controls are uneconomic. under many strict environmental
     will oversee technical and
                                               abundant natural gas is the preferred          regulatory scenarios, experts such as credit suisse predict coal-fired
     operational implementation for            fuel choice for power generation.              capacity retirements of up to 100 gigawatts over the next decade,
     the retirement of approximately
                                               located southeast of strathmore,               accounting for up to 30 percent of the u.s. coal-fired electricity
     900 megawatts, or 50 percent, of          Alberta,	the	natural	gas-fired	combined	       generating fleet.(17) if these retirements occur and the capacity is replaced
     coal-fired generation capacity for        cycle power plant produces enough              with modern natural gas combined cycle power stations, natural gas
     the state’s utility. the utility’s plan   electricity for the alberta grid to light up
                                                                                              consumption could increase by up to 8 Bcf/d.
     proposes that all 900 megawatts           a city of 100,000 people, and it does so
     retired or repowered capacity be          with minimized emissions output. the
                                               Cavalier power station emits 50 percent        clEanER, hEalthiER aiR
     converted from coal to natural gas.(13)                                                  emissiOns reductiOns fOr POwer generatiOn
                                               less Co2 , 70 percent less noX and
     mirroring the colorado example,           100 percent less so2 and mercury than          Carbon dioxide 55-65%

     canada’s federal environment              a	typical	coal-fired	generating	station.       Carbon monoxide 90%
                                                                                              Sulphur dioxide 99%
     ministry announced on June 23,            in operation since 2001, the
                                                                                              Nitrogen oxide 80-90%
     2010 that legislation will be tabled      120 megawatt facility draws roughly            Particulate matter 99%
     to phase out coal-fired power             20 mmcf/d of natural gas from the              Mercury 100%
                                               next-door Cavalier gas plant in order
     plants over the coming years in                                                          Source: Energy Information Administration, Encana estimate.
                                               to meet encana’s electricity needs. the
     favour of more environmentally
                                               gas fuels a combined cycle operation
     sound alternatives. it’s expected the     consisting of two gas turbines and one
     legislation will reference emissions      steam turbine, the main drivers of the
     standards and efficiencies currently      plant’s cycle.


36   encana corporation / Annual Report 2010
Our proven record of giving and volunteering is strengthened year-round through our Encana
Cares programs, which match employee donations dollar-for-dollar and provide cash grants to
organizations where they donate their time. In 2010, the Encana Cares Annual Campaign saw
more than 1,200 charities locally and around the world receive $3 million raised in the month
of October alone. Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com
                                                                                                         taking responsibility




                                                  responsible
                                                development
     streamlined
     management
     system
     / encana’s
     commitment
     to responsible
     development /42

     · mid-cOntinent Business
       unit earns isO certificatiOn
                                                                                   building relationships and
     · a Premier safety culture                                                           supporting partners
     · funding the technOlOgies
       Of the future
                                               enhancing sKills and improving economies
     · water management
                                               / scholarships and awards                /39
     · internatiOnal recOgnitiOn
                                               investing in the communities where encana operates simply makes good business
                                               sense. encana’s community involvement programs are strategically aligned to help boost
                                               local economies and enhance the skill sets of the next generation of industry leaders.


                                                                            · schOlarshiPs                · envirOnmental educatiOn
                                                                              PrOvide suPPOrt fOr           a Key PriOrity
                                                                              future wOrKers
                                                                                                          · nurturing cOmmunity
                                                                            · tOOls fOr success fOr         leaders
                                                                              future industry leaders
                                                                                                          · the sPirit Of giving
                                                                            · suPPOrting the neXt
                                                                              generatiOn Of aBOriginal
                                                                              Business leaders            www.encana.com/responsibility/
                                                                                                          www.encana.com/news/topics/
                                                                                                          cbm-groundwater/



38   encana corporation / Annual Report 2010
WATER MANAGEMENT
/ RESPONSIBLE USE




                                           “We need water. We need energy.
                                           It’s not a question of one or
                                           the other. It’s a matter of using
                                           both responsibly.”



                                                    DAVE LYE
                                                    Vice-President, Corporate EH&S,
                                                    Security & Corporate Responsibility




   Energy is utilized in everything
   we do. From the moment we get
   out of bed, turn on the light and                                                      H
   start brewing our morning cup of
   coffee, energy is being consumed
   from various forms of renewable
   and non-renewable resources.

   We all need both energy and water.
   Water is a critical resource and
   Encana takes responsibility for the
   water it uses extremely seriously.
   All forms of energy require water
   somewhere along their development
   cycle. In turn, energy is required to
   treat, transport and heat the water
   we use in our homes and businesses.

   Encana takes a responsible                                       H
   approach to sourcing, use, transport
   and disposal of water. This includes
   seeking opportunities to use
   non-potable (not fit for animals or
   humans) water and recycling/reusing
   water where possible.
water management framework / it begins with


ENERGY
Natural gas is a key energy source of the future, and North America is well positioned to meet the demand.
Natural gas is critical to North America’s lower carbon future.




         “Natural gas is the viable energy option
         for a carbon-constrained world.”


                                 KEVIN BENETEAU
                                 Group Lead, Air & Water
                                 Canadian Division




                                                                                                                    30%
                                                                                65%
                                                                            Natural gas is clean, producing    Natural gas is affordable, in many
                                                                            up to 65 percent less emissions    regions up to 30 percent less
                                                                            than coal and 25 percent less      expensive as a transportation fuel
                                                                            than oil.                          than diesel or gasoline.


WHY USE NATURAL GAS AS OUR             A shift towards renewable energy     Natural gas produces 25 percent    Protecting water resources and
SOURCE OF ENERGY?
                                       is a viable solution to cut carbon   less CO2 emissions than oil        using them wisely is important
A domestic and proven source           emissions – however, North           and up to 65 percent less CO2      to Encana’s continued success.
of energy, natural gas makes up        American demand is simply too        emissions than coal.               The company recognizes
about 23 percent of the energy         high to be supported entirely by                                        that its water requirements
                                                                            NATURAL GAS DEVELOPMENT
mix in Canada and the U.S. With        renewable energy sources.                                               and the challenges posed
                                                                            DEPENDS UPON WATER
an estimated 100 years supply in                                                                               by its operations require
                                       Natural gas is affordable, it can    So do Encana’s contractors and
Canada and the U.S., at current                                                                                tailored approaches to water
                                       support renewable technology,        employees who live and work
production rates, this underutilized                                                                           management. Encana reduces
                                       and it is a reliable source of       in the same communities as its
resource presents an opportunity                                                                               the use of freshwater through
                                       energy when the wind doesn’t         stakeholders.
to shift North America’s energy                                                                                the sourcing of alternatives
                                       blow or the sun doesn’t shine.       Encana has adapted its water
mix and incorporate more natural                                                                               where appropriate, and seeks to
                                       Natural gas is the cleanest-         management approach to
gas into transportation and                                                                                    recycle and reuse water wherever
                                       burning fossil fuel. Composed        address geological factors,
power generation.                                                                                              possible. Where produced
                                       mostly of methane, the               hydrology and operational needs.
Natural gas is the clear energy                                                                                water cannot be recycled, it is
                                       combustion by-products of            This means no single water
choice in meeting the increased                                                                                disposed of responsibly to avoid
                                       natural gas are carbon dioxide       management approach
demand for energy while at the                                                                                 the contamination of freshwater
                                       (CO2) and water vapour, the same     works in all of the company’s
same time reducing our overall                                                                                 resources or land.
                                       compounds we exhale.                 operating areas.
carbon footprint.
water management framework / it’s about


PROTECTION

                                                                PROTECTING WATER DURING DRILLING             great care to design and install effective
                                                                Encana has proven processes in place         well casing systems.
                                                                to protect groundwater and minimize          Surface casing, a section of steel pipe,
                                                                environmental impact before, during and      is cemented in place deeper than
              Wellhead                                          after the drilling process.                  aquifers used for drinking water and
                                                                Before drilling, Encana may conduct          isolates shallow groundwater from
                                                                predevelopment or baseline groundwater       geologic formations that produce natural
                                                                sampling. In some jurisdictions, such as     gas. Numerous tests are run to ensure
                                                                coalbed methane development in Alberta,      the quality and integrity of the casing
                                                                groundwater testing is currently required    and cement.
         •	 Aquifers	are	protected	throughout	the	
            drilling/fracturing	process	and	Encana	             by regulation. In other areas the scope      Depending on the unique characteristic
            is	bound	by	various	federal,	municipal,	            and extent of predevelopment or baseline
            provincial	and	state	laws	which	protect	                                                         of the subsurface, sometimes Encana will
            groundwater.                                        groundwater testing is determined by site-   install a second string of casing – called
         •	 Drinking	water	aquifers	are	located	far	            specific factors including the depth and     intermediate casing.
            above	the	production	zone.	                         quality of local groundwater resources,
         •	 Typical	water	wells	can	range	from		
                                                                                                             On a deep horizontal well, Encana drills the
                                                                the current and expected use of the
            100	to	200	feet	below	ground	surface.                                                            well to a total vertical depth ranging from
                                                                groundwater in the area and the proximity
         •	 Cement	is	used	to	seal	casing	to	                                                                approximately 6,500 feet to 15,000 feet.
            formation	and	prevent	fluid	(gas	or	water)	         to groundwater users and potential users.
            movement	outside	the	casing.                                                                     Drilling then continues into the horizontal
                                                                In addition to the natural barriers formed
                                                                                                             portion of the well that extends up to
                                                                by thousands of feet of dense rock
                                                                                                             9,800 feet into the producing formation.
                                                                formations, Encana takes numerous
                                                                measures to ensure the integrity of the      Once the horizontal section of the well
                                                                wellbore and eliminate any pathway from      is drilled, a third string of protection –
                                                                the wellbore to drinking water formations.   the production casing – is run into the
                                                                                                             wellbore. Horizontal drilling allows for the
                                                                Wellbore construction is critical to
                                                                                                             extraction of larger quantities of natural
                                                                protecting groundwater. Encana takes
                                                                                                             gas from a single well.

                                                                Typical Well Casing Diagram
                                                                (Not to Scale)


                                                                                                             Cement – the engineered steel casing system is
                                                                                                             cemented externally to prevent any fluids from
                                                                                                             migrating from the wellbore to groundwater aquifers.




                                                                                                             Conductor Casing – used to maintain integrity
                                                                                                             during initial drilling operations.



                                                                                                             Surface Casing – steel pipe protects groundwater/
                                                                                                             aquifers. Depth is dependent on depth of aquifers
                                                                                                             and/or pressure of reservoir, but is generally deeper
                                                                                                             than regional aquifers; cemented in place with
                                                                                                             cement running between the earth and the pipe.

                                                                                                             Intermediate Casing – required in certain wells,
                                                                                                             depending on reservoir pressure; set to top of the
                                                                                                             producing formation.


                                                                                                             Production Casing – runs to bottom of well; often
                                                                                                             cemented all the way to surface.




                                                                PROTECTING WATER DURING                      The extreme pressure exerted by the
                                                                HYDRAULIC FRACTURING
                                                                                                             rock above the fracturing zones limits the
                                                                Most of Encana’s water use happens           distance new fractures can travel. Along
                                                                during hydraulic fracturing operations.      with those safeguards, Encana uses
                                                                Virtually every natural gas well drilled     multiple techniques to fully monitor each
                                                                today requires some type of stimulation to   hydraulic fracture treatment it conducts.
                                                                allow the gas to flow to the wellbore. The   Encana ensures the integrity of the
                                                                goal of hydraulic fracturing is to enhance   casing and cement system through field
                                                                recovery by creating pathways for the        inspection and wellbore logging.
                                                                natural gas trapped in the rock to flow      Before the company begins completion
                                                                up the wellbore to production equipment      operations, it pressure tests to ensure
                                                                at the surface. It is this path of least     integrity. Encana then constantly
                                                                resistance that channels the natural gas     monitors pressures during each fracturing
                                                                into the wellbore.                           operation. Any flow of fluids into non-
                                                                This controlled operation pumps a mixture    targeted areas would immediately be
                                                                of fluids (primarily water) and a propping   detected by a sudden loss in pressure
                                                                agent through the wellbore to the target     and operations would be halted.
                                                                formation at a high pressure in multiple     Hydraulic fracturing processes are strictly
                                                                intervals, or stages. The process breaks     regulated by various state or provincial
                                                                up the target formation, much like a         government agencies today. Encana
                                                                stone fracturing a windshield, to create     meets and, in many cases exceeds, the
                                                                pathways that allow the gas to flow from     requirements set out by the regulators.
                                                                the very low permeability reservoir toward
                                                                                                             Encana continues to build upon its
                                                                the wellbore.
                                                                                                             detailed understanding of the chemicals
                                                                In all Encana operations, rigorous water     used in the hydraulic fracturing process
                                                                management and protection are vital parts    to ensure the company is using the
                                                                of this process. As noted above, proper      most responsible hydraulic fracturing
                                                                wellbore design and a steel casing system    fluid formulations and fluid management
                                                                prevent fluids migrating from the wellbore   practices available.
                                                                and protect local groundwater.

                                 The production zone is
                                 far below the surface and
                                 thousands of feet below
                    1,453 feet




                                 freshwater aquifers.
                                 A deep horizontal well
                                 can have a vertical depth
                                 of up to 15,000 feet (almost
                                 three miles) which equals                                                   www.encana.com/news/topics/
                                 up to 10 Empire State                                                       hydraulicfracturing/
                                 Buildings in height.



                                                                                                             •	 Fracture	water	and	produced	water	are	
                                                                                                                kept	isolated	from	groundwater.	
                                                                                                             •	 Water	and	sand	are	required	to	fracture	
                                                                                                                rock	and	increase	permeability	to	
                                                                                                                remove	gas.
                                                                                                             •	 Encana	constantly	monitors	pressures	
                                                                                                                during	each	hydraulic	fracturing	
                                                                                                                operation.	Any	flow	of	fluids	into		
                                                                                                                non-targeted	areas	would	immediately	
                                                                                                                be	detected	by	a	sudden	loss	in	
                                                                                                                pressure	and	operations	would		
  PRODUCTION DEPTH / UP TO 15,000 FEET BELOW THE SURFACE                                                        be	halted.
water management framework / examples of our


APPROACH
Water is vital to our daily lives. The use of water plays a crucial role in developing natural gas resources.
Protecting this natural resource and using it wisely is important to Encana’s continued success.


WATER TREATMENT IN COLORADO                                               The treatment facilities provide hydrocarbon and solids removal
Since 2003, Encana has been using an extensive water treatment            through gravity separation, chemical and heat addition methods.
and distribution system to support drilling and well completion           Once treated, the water is stored in secure holding ponds until
operations in Colorado’s Piceance Basin.                                  it is reused in completion activities, and the cycle begins again.
Produced water is removed from the wells, along with natural gas,         Improving the quality of the water waiting to be recycled makes it
from thousands of feet below ground surface.                              less hazardous to wildlife and improves air quality. The separated
                                                                          hydrocarbons are stored in tanks for future sale. Through this
Because of its salt content (up to 30 times higher than drinking
                                                                          voluntary hydrocarbon removal and water treatment system,
water) this water is unsuitable for domestic or livestock use. Encana’s
                                                                          Encana is able to recycle up to 90 percent of the water produced
facilities in four locations are designed to treat about 45,000 barrels
                                                                          during drilling, completion and production operations, greatly
of water per day and allow recycling of produced water.
                                                                          reducing the amount of freshwater used, thereby conserving this
Produced water from Encana wells and flowback water from well             important natural resource.
completion operations is transported to these facilities by truck
and an extensive network of pipelines. In the region, Encana also
continues to build pipeline infrastructure to minimize the need for
trucking water and over the course of 2010 the company installed
another 10 miles of water pipelines.




SOURCING SALINE WATER IN              supplying water for fracturing      surface sources. In 2011, the         Alberta and trucked to the Kakwa
BRITISH COLUMBIA
                                      operations and for disposal         plant is expected to treat more       Field, a round trip of about
In 2007, Encana and Apache            of spent fracturing fluids or       than 12.5 million barrels of water,   90 miles.
Corporation began an active           produced water. The Debolt          meaning only about 10 percent of      At a development rate of
drilling program in British           formation occurs at depths of       the water required for hydraulic      40 wells per year, approximately
Columbia’s Horn River Basin.          approximately 1,600 feet to         fracturing operations is sourced      3,000 truckloads of water per
Given the low permeability of the     3,600 feet below the surface        from surface water sources.           year would be required. The
Horn River, hydraulic fracturing of   and holds saline water unfit for    This initiative reduces the need      stakeholders near Encana’s
the target formation is required      most common uses. Tapping           for surface water sources and         Kakwa operations were
to recover natural gas from this      this water source required          relieves some of the pressure on      concerned with the amount of
play. Water management was            many innovations, including         the local watershed.                  truck traffic that would be added
a key concern identified by           the investigation of several
                                                                          WATER TRANSPORT IN ALBERTA            to their main transportation route
Encana and brought forward            “sweetening” methods needed
                                                                          By constructing a water storage       which is narrow, steep and windy.
by stakeholders during public         to remove hydrogen sulphide
meetings about developments                                               pond on its Kakwa property in         By constructing the water storage
                                      (H2S) and make this water usable
in the basin. Encana sought                                               west-central Alberta, Encana is       pond, Encana fulfills its water use
                                      for industrial purposes. A water
alternatives to freshwater use                                            optimizing collection of surface      requirements within the Kakwa
                                      treatment plant was designed
to supply hydraulic fracturing                                            water flow and providing a            field, which eliminates the need
                                      and built and since it began
operations. What followed                                                 permanent wetland and water           to use municipal water, reduces
                                      operation in June 2010, surface
was the identification of the                                             body habitat for wildlife use in      truck traffic, the associated
                                      water use has been significantly
Debolt formation, a deep,                                                 the future. The water required        emissions from that traffic as well
                                      reduced. In 2010 alone, a total
sub-surface, unutilized aquifer                                           to develop the Kakwa resource         as the costs of purchasing and
                                      of five million barrels of Debolt
containing saline, sour water.                                            was being purchased from the          transporting water from
                                      water were used in completion
Test results indicated that the                                           municipality of Grande Cache,         Grande Cache.
                                      operations, which in the past
Debolt formation is capable of        would have been sourced from
 “We collaborate with third parties to
 fund important water-related research.”



                        DOUG HOCK
                        Team Lead, Community & Public Relations
                        USA Division




In Colorado, Encana participates        and groundwater levels in the
in the Piceance Basin Water Data        Kiskatinaw watershed and furthers
Repository project. This database,      knowledge about the surface and
maintained by the US Geological         groundwater hydrology
Survey, consists of a publicly          in this area.
accessible website that contains
                                        In British Columbia, Encana has
water sampling data from locations
                                        supported the Horn River and
throughout the Piceance Basin
                                        Montney Water projects being
provided by industry, government
                                        run by Geoscience BC. This
and citizens. In addition to
                                        industry-led, industry-focused,
maintaining the database, USGS
                                        applied geoscience organization         H
provides technical papers and
                                        encourages minerals and oil and
abstracts based upon the data
                                        gas exploration investment in
gathered. Over the long term
                                        British Columbia through the
this database will help industry,
                                        collection, interpretation and
regulators and stakeholders better
                                        marketing of publicly available,
understand what impacts, if any, oil
                                        applied geoscience.
and gas development is having on
groundwater in the basin.               The Montney Water Project
                                        is designed to provide a
In the Peace Region of British
                                        comprehensive inventory of
Columbia, the Kiskatinaw River
                                        water sources and potential for
watershed is the only source
                                        deep geological disposal sites
of water for the City of Dawson
                                        in the Montney Gas Play area of
Creek and Village of Pouce Coupe.
                                        northeastern B.C., by creating
Encana has supported water
                                        a comprehensive database of
research work by the University
                                        surface water, groundwater and      H
of Northern British Columbia. This
                                        deep saline aquifers in the area.
research monitors surface water
                                                                                                                                                 sports &
                                                                                                                                                recreation




responsible development / strategic investments


enhancing sKills
and improving                                                                                                                  education




economies
/ scholarships and awards




                                                                           schOlaRshiPs PROvidE suPPORt fOR futuRE wORkERs
                                                                           encana awards approximately 50 new scholarships yearly to high school
                                                                           students pursuing post-secondary education in engineering, geology,
                                                                           geophysics and other industry-related trades. worth $10,000 over
                                                                           four years, these awards – along with numerous other scholarships for
                                                                           specialized studies at various post-secondary institutions throughout
                                                                           north america – reflect encana’s commitment to education.

                                                                           tOOls fOR succEss fOR
                                                                           futuRE industRy lEadERs
                                                                           the encana integrated simulation
                                                                           data centre, designed to resemble
                                                                           a professional industry data room,
                                                                           was officially opened at the university
                                                                           of wyoming on October 8, 2010.
                                                                           the facility features software and
                                                                           technology capable of running
                                                                           well simulation 30 to 40 years into
                                                                           the future, predicting lifespan and
                                                                           potential output. the lab enables students to create three-dimensional
                                                                           renderings of oil and gas development, detailing stratum up to 12,000 feet
                                                                           below the surface. this is the second of three labs funded through a
investing in the communities where Encana operates simply makes            $2 million donation from encana made in 2006 and matched by the state
good business sense. Encana’s community investment programs                of wyoming. “encana values the long-term commitment to education and
are strategically aligned to help boost local economies and enhance        the rewarding relationship with the university of wyoming and supports
the skill sets of the next generation of industry leaders. working         programs that serve the needs of students, the university and the oil and
directly with stakeholders through open dialogue and collaboration         gas industry. i look forward to seeing what these students are able to do
increases Encana’s understanding of the unique needs specific              in the next 10 years and beyond with the knowledge they gain from this
to each of its operating communities and where the company can             facility,” says encana’s eric marsh, a university of wyoming alumnus who
make the most impact through its community investment.                     attended the facility’s ribbon-cutting ceremony.

encana has five focus areas for community investment: the environment,     suPPORting thE nExt gEnERatiOn Of abORiginal
education, sports and recreation, family and community wellness and        businEss lEadERs
community enhancement. encana places a strong emphasis on the              in 2010, encana’s aboriginal relations team continued to support
environment and education focus areas.                                     scholarships and networking opportunities specifically tailored to make
in 2010, about 40 percent of encana’s investment was for education,        post-secondary education accessible to aboriginal youth in British
complementing the company’s overall business strategy by helping to        columbia. the ch’nook aboriginal Business education initiative, offered
create the highly skilled workforce needed to build a new north american   through the university of British columbia, helps aboriginal students to
energy portfolio. this came in the form of scholarships and programs       pursue business education at 25 colleges throughout the province. this
delivered through various educational institutions. when coupled with      unique opportunity allows for study close to home, helping to bring the
community involvement initiatives on environmental awareness, this         entrepreneurialism of graduates back to their communities.
focus on education bolsters the skills and knowledge needed for a
cleaner energy future.
                                                                                                                   Annual Report 2010 / encana corporation   39
                                                                                                                                     community
                                                                                                                                    enhancement




                                                                                   environment



                                                     community
                                                      wellness




     since the 2006 introduction of
     ch’nook’s advanced management
     Program – of which encana is
     a leading funding sponsor – the
     initiative has produced 50 alumni
     from victoria to fort nelson.


     “Contributing to the strength
     and sustainability of the
     Aboriginal communities where
     we operate is fundamental                    this past spring, encana helped       EnviROnmEntal EducatiOn a kEy PRiORity
     to our business strategy,                    initiate a pilot project for a        four colorado high schools and their international sister schools are
     proactively demonstrated in                  group of aboriginal high school       helping to build the world’s first global ozone database, thanks to a grant
     our support of educational                   students from the northeastern        from encana. the funds sponsored the participation of the eight schools
     programs and opportunities                   British columbia communities          in the global Ozone (gO3) project, supplying each with a state-of-the-art
     to help train the Aboriginal                 of fort st. John, dawson creek,       ozone monitor and meteorological station. students use the equipment
     business leaders of tomorrow.                chetwynd and fort nelson. the         to collect data on ground-level ozone outside their schools. the results
     This investment and support                  students gathered at the dawson       are uploaded as an overlay on a google earth map, giving students
     represents a mature, evolving                creek campus of northern              detailed visuals of ozone concentrations and variances in air quality.
     relationship between Encana                  lights college, where they were
                                                                                        in texas, hands-on environmental help from hundreds of students proved
     and its communities, one                     introduced to ch’nook through
                                                                                        truly habitat-forming through an encana grant of $240,000 to the
     that fosters constructive                    first-hand testimonials from some
                                                                                        healthy habitats program. administered by the texas Parks & wildlife
     partnerships and win-win                     of its graduates. One of ch’nook’s
                                                                                        department and the texas center for service-learning, the program
     economic opportunities.”                     and encana’s academic partners,
                                                                                        sees Kindergarten to grade 12 students, their teachers and community
     mike forgo
                                                  northern lights college, was
                                                                                        members embark on environmental improvement initiatives. with
     vice-president, Business services            also the recipient of six $1,000
     & stakeholder relations, Canadian division                                         encana’s support, more than 3,100 students, teachers, parents and
                                                  aboriginal entrance awards
                                                                                        community members across texas helped restore prairie habitat, prevent
                                                  offered by encana for the 2010 fall
                                                                                        creek and land erosion, and remove invasive species.
                                                  semester at the college.



40   encana corporation / Annual Report 2010
“Making natural gas the centrepiece of North America’s energy
portfolio requires reaching out to students through a number of unique
initiatives, both to promote environmental awareness and to educate
the next generation about this clean, affordable, abundant resource
within North America.”
don mcclure
vice-president, government & stakeholder
relations & legal, Usa division




                                           educating the next generation
                                           about environmental responsibility
                                           also means showcasing the virtues
                                           of natural gas. encana’s efforts
                                           were recognized last June when
                                           the non-profit organization national
                                           energy education development
                                           (need) gave Program of the
                                           year honours to the colorado
                                           school system’s energy education
                                           curriculum. encana was recognized
“It was truly incredible to                for supporting teacher training        with the Banff centre in alberta for the creation of an innovative new
witness the outpouring of                  and providing kits to more than        community of leaders program. the program has been making a
generosity during the 2010                 180 classrooms – reaching more         difference since november 2009, when the first cohort of leaders from
annual campaign in October.                than 15,000 students. in 2010,         across western canada began an intensive three-day leadership and
More than 1,200 worthwhile                 encana provided nearly $450,000        project management training program at the Banff centre, while a
charities locally and around the           in funding for need programs           second cohort embarked on the program this past november. encana’s
world were the beneficiaries of            in colorado, texas, wyoming,           relationships with its operational communities helped in the selection of
$3 million, thanks to employee             louisiana and Pennsylvania.            program participants, each of whom identified a community project they
giving during the one month                                                       advanced by applying the Banff centre’s training.
that the campaign was active.              nuRtuRing
                                           cOmmunity lEadERs
I’m very proud to be part of                                                      thE sPiRit Of giving
an organization that is not only           understanding the unique needs
                                                                                  community investment also supports the individual charitable choices of
keenly competitive but where               of each community in which it
                                                                                  its employees through the encana cares program. this program matches
our employees are willing to               operates is central to encana’s
                                                                                  employee donations, dollar for dollar, up to $25,000 per employee per
step forward and help those                community involvement programs.
                                                                                  year. encana also has an employee volunteer program that provides cash
in need.”                                  to support leadership and
                                                                                  grants to organizations where employees and their families volunteer their
                                           capacity-building at the community
pat macdonald                                                                     time. in 2010, more than $5 million was donated to charities thanks to
vice-president,                            level, encana entered into a
                                                                                  the encana cares program and the generosity of encana employees.
human resources & Communications           $1.5 million arrangement in 2009


                                                                                                                          Annual Report 2010 / encana corporation   41
     responsible development / environment, health & safety                    mid-cOntinEnt                         a PREmiER safEty cultuRE
                                                                               businEss unit EaRns
                                                                                                                     in 2010, encana achieved the best

     streamlined
                                                                               isO cERtificatiOn
                                                                                                                     safety results in company history
                                                                               consistent with the ethos
                                                                                                                     in terms of total recordable injury

     management system                                                         philosophy of continuous
                                                                               improvement, the mid-continent
                                                                                                                     frequency. this performance
                                                                                                                     was attributable to strong safety
     / encana’s commitment to                                                  Business unit (mcBu) saw the
                                                                                                                     leadership throughout the
       responsible development                                                 culmination of efforts launched
                                                                                                                     company, a capacity encana has
                                                                               in the fall of 2009 to enhance the
                                                                                                                     built on through training programs
     encana’s commitment to responsible development means striving             environmental management
                                                                                                                     such as safety essentials for
     for continuous improvement in protecting people’s health and safety       system of its operations. mcBu
                                                                                                                     leaders. in addition, encana further
     and minimizing the impact of its activities on the environment. these     vice-President Paul sander had a
                                                                                                                     raised its expectations on the
     values underscore the company’s approach to business and guide its        goal of achieving isO 14001: 2004
                                                                                                                     safety performance of contractors
     performance. By increasing accountability for performance in these areas, certification in 2010 in order to:    and service providers.
     both individually and company-wide, encana reinforces environment,           e
                                                                               •	 	 stablish	the	environment	as	a	
                                                                                                                     the company’s drive safe program
     health & safety (eh&s) as a core value, ultimately safeguarding workers,     clear priority and focus for the
                                                                                                                     – initiated to curb vehicle collisions,
     communities and the environment. a number of significant eh&s                business unit
                                                                                                                     the single leading cause of death
     milestones were achieved in 2010, including the development of an
                                                                                  r
                                                                               •	 	educe	the	overall	operational	    in the oil and gas industry – was
     enhanced eh&s management system, strong safety performance and
                                                                                  footprint by minimizing impacts    expanded company-wide in 2010
     advances in environmental innovation.
                                                                                  and reducing pollution             with representation from both the
     encana’s eh&s management system is far more than a tool that specifies                                          usa and canadian divisions.
                                                                                  c
                                                                               •	 	 ontinuously	improve	
     performance expectations; it’s a cultural blueprint embedded in encana’s
                                                                                  environmental performance          a revised safety brand – safe
     daily operations and activities. during 2010, encana realigned its eh&s
                                                                                  within every operation             360 – further speaks to encana’s
     management system. the streamlined, simplified system, now called
                                                                               the effort included an                ongoing work to achieve an
     ethos, integrates operational excellence across all encana operations
                                                                               environmental assessment              injury-free workplace. targeting all
     to ensure long-term success and sustainability. integrating ethos helps
                                                                               of all activities, selection and      employees, contractors, service
     encana meet internal and external accountabilities and demonstrate
                                                                               implementation of environmental       providers and stakeholders, safe
     sound eh&s performance to all stakeholders. the plan-do-check-act
                                                                                                                     360 underscores the importance
     process integral to ethos drives the continuous improvement of encana’s objectives, measurement of
                                                                               outcomes and a significant            of being aware in all directions – be
     eh&s processes and performance.
                                                                               amount of training and awareness      it potential hazards on a worksite
     “ethos provides business units with a simple and effective system to                                            or acknowledgement of safety
                                                                               activities. the mcBu was audited
     guide their eh&s performance as well as a means to measure and report                                           considerations in a project design.
                                                                               in October and november of 2010,
     on that performance through audit and self-assessment against the
                                                                               and in december 2010 received
     system. it’s a systematic, common sense approach that gives predictable
                                                                               formal isO certification.
     outcomes and empowers staff to achieve continuous improvement,”
     says Byron gale, vice-President, eh&s, usa division.




42   encana corporation / Annual Report 2010
                                       program that provides financial       walking the talk on water              consecutive year encana made the
“In 2009, we achieved our              support to external companies         management requires infrastructure     world index, which recognizes a
best-ever total recordable             and technologies that endeavour       investment. the debolt water           select list of 318 companies in
injury frequency rate as a             to improve the environmental          treatment plant in northeastern        57 industries and 27 countries.
company, a benchmark we                performance of producing or           British columbia is a prime            the list is based on analyses of
bettered statistically in 2010.        consuming energy.                     example. commissioned in 2010,         corporate economic, environmental
Striving for a premier safety                                                the plant provided completions         and social criteria, including the
                                        such funding enhances
culture means never being                                                    operations in the horn river play      evaluation of climate change
                                        and complements encana’s
satisfied. We constantly strive                                              with a consistent supply of water.     strategies, energy consumption,
                                        commitment to environmental
for improvement and that’s                                                   six months after the plant was         human resources development,
                                        stewardship and its focus on
the message of Safe 360 –                                                    operational, 75 to 80 percent of       knowledge management,
                                        minimizing detrimental impacts
being committed to safety at                                                 water used in hydraulic fracturing     stakeholder relations and
                                        on air and water quality. through
home, on the road and in the                                                 operations was from the debolt         corporate governance. encana
                                        identification of environmental
workplace.”                                                                  formation – resulting in significant   was the only north american oil
                                        risks and of innovative and viable
brent harrison                                                               surface water preservation.            and gas company, and one of
                                        environmental technologies,
vice-president, eh&s, Canadian division                                                                             12 worldwide, named to the
                                        encana strives for continuous        intERnatiOnal                          Oil and gas Producers’ sector
                                        improvement in terms of minimizing   REcOgnitiOn
funding thE tEchnOlOgiEs operational impacts on land,                                                               of the 2010 dJsi world list.
                                                                             encana’s commitment to
Of thE futuRE                                                                                                       the company also earned the
                                        water and air.                       responsible development saw the
in 2010, encana expanded the                                                                                        distinction as a “sustainability
                                                                             company named in 2010 to the
mandate of its energy efficiency        watER managEmEnt                                                            leader” in the oil and gas industry.
                                                                             dow Jones sustainability world
program to include internal projects   encana’s sound water
                                                                             index (dJsi world). it was the fifth
that create measurable reductions      management practices are
in energy, air emissions, and land     constantly evaluated for
or water use within company            improvement. to help preserve this    “This ongoing recognition as a world leader in sustainability
operations. under the renamed          valuable resource, encana seeks       shows that our initiatives around responsible development –
environmental efficiency fund,         opportunities to recycle water        including those pertaining to EH&S and our stakeholders –
$6 million was committed to            and use unutilized water sources      are well-balanced with our economic achievements. It reflects
12 projects in 2010, with an           wherever practical. water advisors    the daily efforts our staff undertakes to ensure we conduct our
estimated 55,000 tonnes of carbon      embedded in both operating            business in the most responsible and sustainable
dioxide equivalent (c02e) avoidance.   divisions provide surface and         fashion possible.”
three external projects were funded    groundwater expertise in canada       dave lye
                                                                             vice-president, Corporate eh&s,
in 2010 through the environmental      and the united states.
                                                                             security & Corporate responsibility
innovation fund – a sister




                                                                                                                     Annual Report 2010 / encana corporation   43
To improve our safety standards we recently installed digital devices in some
of our company vehicles to positively affect driving habits. The new devices
monitor each driver’s behaviour, including speeding, hard braking and hard
acceleration. This ensures everyone gets to their destinations safely.
Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com
                                                                                                                                    M d& a
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management’s
discussion and analysis
For the year ended December 31, 2010 (U.S. Dollars)




This Management’s Discussion              Supplemental Information, as well prepared reserves information in
and Analysis (“MD&A”) for Encana          as Encana’s Information Circular  accordance with Canadian
Corporation (“Encana” or the              Relating to an Arrangement        securities regulatory requirements.
“Company”) should be read                 Involving Cenovus Energy Inc.     Production volumes are presented
with the audited Consolidated             dated October 20, 2009.           on an after royalties basis
Financial Statements for the              The Consolidated Financial        consistent with U.S. oil and gas
year ended December 31, 2010,             Statements and comparative        reporting and the disclosure of
the audited Consolidated                  information have been prepared in U.S. oil and gas companies. The
Financial Statements and MD&A             United States (“U.S.”) dollars,   term “liquids” is used to represent
for the year ended December 31,           except where another currency     crude oil, natural gas liquids
2009, the unaudited Pro Forma             has been indicated, and in        (“NGLs”) and condensate
Consolidated Financial                    accordance with Canadian          volumes. This document is
Information for the year ended            Generally Accepted Accounting     dated February 17, 2011.
December 31, 2009 presented               Principles (“GAAP”). As a
in Encana’s December 31, 2010             Canadian issuer, Encana has


Readers should also read the Advisory section located at the end of this document, which provides
information on Forward-Looking Statements, Reserves Data and Other Oil and Gas Information and
Currency, Pro Forma Information, Non-GAAP Measures and References to Encana.




management’s Discussion and analysis                                             Financial statements

46 / Encana’s Strategic Objectives        60 / Liquidity and Capital Resources   75 / Management Report
46 / Encana’s Business                    63 / Contractual Obligations           76 / Auditor’s Report
47 / Results Overview                          and Contingencies                 78 / Consolidated Financial
48 / Financial Results                    63 / Risk Management                        Statements
52 / Reserves Quantities                  67 / Accounting Policies               82 / Notes to Consolidated
                                               and Estimates                          Financial Statements
53 / Production and Net
     Capital Investment                   71 / Non-GAAP Measures                 126 / Supplemental
                                          72 / Advisory                                Information
55 / Divisional Results
     55 / Canadian Division
     56 / USA Division
     57 / Canada – Other


                                                                                  Annual Report 2010 / Encana Corporation              45
M d& a
            p repa red i n us$




     EnCana’s stratEgiC ObjECtivEs
     Encana is a leading North American natural gas producer focused on growing its strong portfolio of natural gas resource plays from northeast British Columbia
     to east Texas and Louisiana. Encana believes that natural gas represents an abundant, secure, long-term supply of energy to meet North American needs.

     Encana is committed to the key business objectives of maintaining financial strength, optimizing capital investments and continuing to pay a stable dividend to
     shareholders – attained through a disciplined approach to capital spending, a flexible investment program and financial stewardship. Encana maintains a strong balance
     sheet and is committed to being a low-cost producer. Encana mitigates cost increases through continuing to improve operating efficiencies and technology innovation.

     Encana is focused on sustainable, high-growth natural gas plays in major North American basins. Encana has a history of entering resource plays early and leveraging
     technology to unlock resources. With the Company’s significant portfolio of natural gas resources, Encana has the capacity for substantial production growth. This
     supports the Company’s long-term strategy of accelerating the value recognition of its assets with a goal of doubling production per share over the next five years
     from 2009 levels. Encana’s strategy for 2011 is to balance near term market uncertainty with continuing capital investment for long-term growth capacity.

     Further information on expected 2011 results can be found in Encana’s 2011 Corporate Guidance on the Company’s website www.encana.com.

     EnCana’s businEss
     Encana’s operating and reportable segments are as follows:

     •	 Canada includes the Company’s exploration for, development of, and production of natural gas and liquids and other related activities within the Canadian
        cost centre.

     •	 USA includes the Company’s exploration for, development of, and production of natural gas and liquids and other related activities within the U.S. cost centre.

     •	 Market Optimization is primarily responsible for the sale of the Company’s proprietary production. These results are included in the Canada or USA segments.
        Market optimization activities include third-party purchases and sales of product that provide operational flexibility for transportation commitments, product
        type, delivery points and customer diversification. These activities are reflected in the Market Optimization segment.

     •	 Corporate and Other mainly includes unrealized gains or losses recorded on derivative financial instruments. Once amounts are settled, the realized gains
        and losses are recorded in the operating segment to which the derivative instrument relates.

     Market Optimization sells substantially all of the Company’s upstream production to third-party customers. Transactions between segments are based on market
     values and eliminated on consolidation. Financial information is presented on an after eliminations basis.

     Encana’s operations are currently divided into two operating divisions:

     •	 Canadian Division, which includes natural gas exploration, development and production assets located in British Columbia and Alberta, as well as the Deep
        Panuke natural gas project offshore Nova Scotia. Four key resource plays are located in the Division: (i) Greater Sierra in northeast British Columbia, including
        Horn River; (ii) Cutbank Ridge in Alberta and British Columbia, including Montney; (iii) Bighorn in west central Alberta; and (iv) Coalbed Methane (“CBM”) in
        southern Alberta.

     •	 USA Division, which includes the natural gas exploration, development and production assets located in the U.S. Five key resource plays are located
        in the Division: (i) Jonah in southwest Wyoming; (ii) Piceance in northwest Colorado; (iii) East Texas in Texas; (iv) Haynesville in Louisiana and Texas;
        and (v) Fort Worth in Texas.

     On November 30, 2009, Encana completed a corporate reorganization (the “Split Transaction”) to split into two independent publicly traded energy companies –
     Encana Corporation, a natural gas company, and Cenovus Energy Inc. (“Cenovus”), an integrated oil company. The former Canadian Plains and Integrated Oil
     – Canada upstream operations were transferred to Cenovus and are presented as Canada – Other. Canada – Other is reported as continuing operations.
     The former Integrated Oil U.S. Downstream Refining assets were also transferred to Cenovus and are reported as discontinued operations.

     Comparative Pro Forma and Consolidated Reporting
     The comparative information presented within this MD&A represents the financial and operating results of Encana on both a pro forma and consolidated basis.
     Pro forma financial information is derived from Encana’s pro forma financial statements, which have been prepared using guidance issued by the U.S. Securities
     and Exchange Commission (“SEC”) and the Canadian Securities Administrators (“CSA”).

     •	 Encana’s	2009	and	2008	pro	forma	results	exclude	the	results	of	operations	from	assets	transferred	to	Cenovus	as	part	of	the	Split	Transaction	and	reflect	
        expected changes to Encana’s historical results that arose from the Split Transaction, including income tax, depreciation, depletion and amortization (“DD&A”)
        and transaction costs. This information is presented to assist in understanding Encana’s historical financial results associated with the assets remaining in
        Encana as a result of the Split Transaction.

     •	 Encana’s	2009	and	2008	consolidated	results	include	both	Encana	and	Cenovus	operations.	


46   Encana Corporation / Annual Report 2010
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Subsequent Event – Joint Venture Announcement
On February 9, 2011, Encana announced the signing of a Co-operation Agreement with PetroChina International Investment Company Limited (“PetroChina”),
a subsidiary of PetroChina Company Limited, that would see PetroChina pay C$5.4 billion to acquire a 50 percent interest in Encana’s Cutbank Ridge business
assets in British Columbia and Alberta. Under the Co-operation Agreement, the two companies would establish a 50/50 joint venture to develop the assets.

The transaction is subject to regulatory approval from Canadian and Chinese authorities, due diligence and the negotiation and execution of various transaction
agreements, including the joint venture agreement. Financial impacts will be determined at the time the negotiations are complete.

2011 Transition to International Financial Reporting Standards (“IFRS”)
Effective January 1, 2011, the Company will be required to report its Consolidated Financial Statements in accordance with IFRS, including 2010 comparative
information. Encana is in the final stages of its IFRS changeover plan and expects to report its first quarter 2011 results in accordance with IFRS in April 2011.
Based on current International standards, Encana expects the transition to IFRS will not have a major impact on the Company’s operations, strategic decisions
and Cash Flow. Further information on the Company’s changeover plan and the expected impacts are discussed in the Accounting Policies and Estimates section
of this MD&A.

Non-GAAP Measures
This MD&A contains certain non-GAAP measures commonly used in the oil and gas industry and by Encana to provide shareholders and potential investors
with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. Non-GAAP measures include Cash Flow,
Operating Earnings, Capitalization, Debt to Capitalization, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and Debt
to Adjusted EBITDA. Further information can be found in the Non-GAAP Measures section of this MD&A.

rEsults OvErviEw

SUMMARy OF RESULtS
Encana Financial Highlights
                                                                                                                               Pro Forma
($ millions, except per share amounts)         2010          Q4         Q3          Q2       Q1	     	 2009		 	       Q4	 	    Q3	 	     Q2	 	       Q1	    	 2008	 	
Cash Flow   (1)
                                           $ 4,439 $ 917 $ 1,132 $ 1,217 $ 1,173	                    $	 5,021	 $	 930	    $	 1,274	 $	 1,430	   $	 1,387	   $	 6,354
    per share – diluted                       6.00    1.25   1.54   1.65    1.57	                    	 6.68	 	 1.24	      	 1.70	 	 1.90	       	 1.85	     	 8.45
Operating Earnings (1)                         665      68     98     81     418	                    	 1,767	 	 373	      	 378	 	 472	         	 544	      	 2,605
    per share – diluted                       0.90    0.09   0.13   0.11    0.56	                    	 2.35	 	 0.50	      	 0.50	 	 0.63	       	 0.72	     	 3.47
Net Earnings                                 1,499     (42)   569   (505) 1,477                           749      233          (53)      92         477       3,405
    per share – diluted                       2.03   (0.06)  0.77  (0.68)   1.97	                    	 1.00	 	 0.31	      	 (0.07)	 	 0.12	     	 0.63	     	 4.53
Capital Investment                           4,773  1,427   1,227  1,099   1,020                        3,755    1,127         794       713       1,121       5,255
Net Acquisitions & Divestitures               (150)     83    (31)   (84)   (118)	                   	 (815)	 	     87	   	 (964)	 	      16	   	     46	   	 317
(1) A non-GAAP measure, which is defined under the Non-GAAP Measures section of this MD&A.

As at and for the year ended December 31, 2010, Encana reported:

•	 Realized	financial	natural	gas,	crude	oil	and	other	commodity	hedging	gains	of	$808	million	after	tax;

•	 Total	average	production	volumes	of	3,321	million	cubic	feet	equivalent	(“MMcfe”)	per	day	(“MMcfe/d”),	representing	a	12	percent	increase	on	a	per	share	
   basis compared to pro forma 2009;

•	 Average	commodity	prices,	excluding	financial	hedges,	of	$4.74	per	thousand	cubic	feet	equivalent	(“Mcfe”);	and

•	 Proved	reserves	of	14.3	trillion	cubic	feet	equivalent	(“Tcfe”)	after	royalties	utilizing	forecast	prices	and	costs.

For the quarter ended December 31, 2010, Encana reported:

•	 Realized	financial	natural	gas,	crude	oil	and	other	commodity	hedging	gains	of	$209	million	after	tax;

•	 Total	average	production	volumes	of	3,353	MMcfe/d,	representing	a	21	percent	increase	on	a	per	share	basis	compared	to	pro	forma	2009;	and

•	 Average	commodity	prices,	excluding	financial	hedges,	of	$4.22	per	Mcfe.




                                                                                                                                  Annual Report 2010 / Encana Corporation             47
M d& a
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     Quarterly Realized and Market Benchmark Prices and Foreign Exchange Rates

     (average for the period)                          2010           Q4     Q3      Q2      Q1	      	 2009		 	           Q4	 	    Q3	 	           Q2	 	         Q1	    	 2008
     Encana Realized Pricing        (1)

     Natural Gas ($/Mcf)
         Including hedging                         $ 5.48 $ 5.03 $ 5.27 $ 5.50 $ 6.14	                $	 7.03	 $		 6.44	 $		 7.44	 $	 7.02	 $		 7.22	                    	 $	8.06
         Excluding hedging                           4.47   3.93   4.19   4.23   5.56	                	 3.73	 	 4.47	 	 3.19	 	 3.09	 	 4.18	                            	 7.99
     Natural Gas Price Benchmarks
     AECO (C$/Mcf)                                      4.13        3.58    3.72    3.86    5.36	     	     4.14	   	 	4.23	 	     3.02	   	   3.66	    	       5.63	    	   8.13
     NYMEX ($/MMBtu)                                    4.39        3.80    4.39    4.09    5.30	     	     3.99	   	 4.17	 	      3.39	   	   3.50	    	       4.89	    	   9.04
     Rockies (Opal) ($/MMBtu)                           3.94        3.44    3.53    3.66    5.14	     	     3.09	   	 3.97	 	      2.69	   	   2.37	    	       3.31	    	   6.25
     Texas (HSC) ($/MMBtu)                              4.38        3.78    4.33    4.04    5.36	     	     3.78	   	 4.16	 	      3.31	   	   3.44	    	       4.21	    	   8.67
     Basis Differential ($/MMBtu)
         AECO/NYMEX                                     0.40        0.28    0.83    0.32    0.19	     	     0.40	 	    0.19	 	     0.67	 	     0.39	 	          0.35	    	   1.23
         Rockies/NYMEX                                  0.45        0.36    0.86    0.43    0.16	     	     0.90	 	    0.20	 	     0.70	 	     1.13	 	          1.58	    	   2.79
         Texas/NYMEX (2)                                0.01        0.02    0.06    0.05   (0.06)	    	     0.21	 	    0.01	 	     0.08	 	     0.06	 	          0.68	    	   0.37
     Foreign Exchange
     U.S./Canadian Dollar
       Exchange Rate                                  0.971       0.987    0.962   0.973   0.961	     	 0.876	 	 0.947	 	 0.911	 	 0.857	 	 0.803	                       	 0.938
     (1)	2009	and	2008	reflect	pro	forma	natural	gas	pricing.
     (2) Texas (HSC) was higher than NYMEX in the first quarter of 2010.

     Encana’s financial results are influenced by fluctuations in commodity prices, which include price differentials, and the U.S./Canadian dollar exchange rate.
     Excluding hedging, Encana’s 2010 average realized natural gas price reflected higher benchmark prices and narrowing basis differentials. Hedging activities
     contributed an additional $1.01 per thousand cubic feet (“Mcf”) to the average realized gas price in 2010.

     As	of	January	31,	2011,	Encana	has	hedged	approximately	1,762	million	cubic	feet	(“MMcf”)	per	day	(“MMcf/d”)	of	expected	February	to	December	2011	gas	
     production using NYMEX fixed price contracts at an average price of $5.75 per Mcf. In addition, Encana has hedged approximately 1,445 MMcf/d of expected
     2012	gas	production	at	an	average	price	of	$6.07	per	Mcf.	The	Company’s	hedging	program	helps	sustain	cash	flow	during	periods	of	lower	prices.	

     FinanCial rEsults

     ANNUAL CASh FLOw
                                                                                                                               Pro Forma                           Consolidated
     ($ millions)                                                                                         2010	        	 2009	      	 2008	                 	 2009	      	 2008
     Cash From Operating Activities                                                                  $ 2,365	          $		5,041	    $		6,224	               $		7,873	    $	8,986
     (Add back) deduct:
        Net change in other assets and liabilities                                                       (84)	         	       38	 	       (173)	           	       23	 	 (257)
        Net change in non-cash working capital from continuing operations                             (1,990)	         	      (18)	 	        43	            	      (29)	 	 (1,353)
        Net change in non-cash working capital from discontinued operations                                –                    –             –                 1,100       1,210
     Cash Flow                                                                                       $ 4,439	          $		5,021	    $		6,354	               $	 6,779	    $		9,386

     2010 versus 2009
     Cash	Flow	of	$4,439	million	decreased	$582	million	from	pro	forma	2009	primarily	due	to	lower	realized	financial	hedging	gains,	higher	transportation	expense	
     and higher interest expense, partially offset by higher realized commodity prices and production volumes. In the year ended December 31, 2010:
     •	 Realized	financial	hedging	gains	were	$808	million	after	tax	compared	to	gains	of	$2,250	million	after	tax	in	2009.
     •	 Transportation	expense	increased	$175	million	due	to	higher	production	volumes	and	transporting	volumes	further	to	obtain	higher	price	realizations.	
     •	 Interest	expense	increased	$130	million	primarily	due	to	a	lower	debt	carrying	value	used	to	determine	pro	forma	interest	for	2009.
     •	 Average	realized	commodity	prices,	excluding	financial	hedges,	were	$4.74	per	Mcfe	compared	to	$3.96	per	Mcfe	in	2009.
     •	 Average	production	volumes	increased	11	percent	to	3,321	MMcfe/d	compared	to	3,003	MMcfe/d	in	2009.

     Cash Flow decreased $2,340 million from consolidated 2009 primarily due to the factors described above and the inclusion of the Cenovus results in the 2009
     consolidated comparatives.

48   Encana Corporation / Annual Report 2010
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2009 versus 2008
Pro	forma	Cash	Flow	of	$5,021	million	decreased	$1,333	million	from	pro	forma	2008	primarily	due	to	lower	realized	commodity	prices	and	production	volumes,	
partially offset by higher realized financial hedging gains, lower production and mineral taxes, lower operating expenses and lower transportation expense.
Expenses	were	lower	primarily	due	to	the	lower	U.S./Canadian	dollar	exchange	rate	and	cost	saving	measures.	Consolidated	Cash	Flow	of	$6,779	million	
decreased	$2,607	million	from	consolidated	2008	primarily	due	to	these	factors	and	higher	2009	current	tax	related	to	the	wind-up	of	the	Company’s	Canadian	
oil and gas partnership, partially offset by higher Cash Flow from discontinued operations.

QUARtERLy CASh FLOw
                                                                                                                              Three months ended December 31

                                                                                                                                      Pro Forma        Consolidated
($ millions)                                                                                                       2010                    2009               2009
Cash From Operating Activities                                                                                 $       919	             $	 1,061	                1
                                                                                                                                                               $		 ,471
(Add back) deduct:
   Net change in other assets and liabilities                                                                            1                      (5)                                     (13)
   Net change in non-cash working capital from continuing operations                                                     1	             	     136	             	                        528
   Net change in non-cash working capital from discontinued operations                                                   –                       –                                      353
Cash Flow                                                                                                      $       917	             $		 930	               $		 603


Q4 2010 versus Q4 2009
Cash Flow of $917 million decreased $13 million from pro forma 2009 primarily due to lower realized financial hedging gains, lower realized commodity prices,
partially offset by higher production volumes. In the three months ended December 31, 2010:

•	 Realized	financial	hedging	gains	were	$209	million	after	tax	compared	to	gains	of	$328	million	after	tax	in	2009.

•	 Average	realized	commodity	prices,	excluding	financial	hedges,	were	$4.22	per	Mcfe	compared	to	$4.77	per	Mcfe	in	2009.

•	 Average	production	volumes	increased	18	percent	to	3,353	MMcfe/d	compared	to	2,831	MMcfe/d	in	2009.

Cash Flow increased $314 million from consolidated 2009 primarily due to the factors described above and the inclusion of the Cenovus results in the 2009
consolidated comparatives which was more than offset by higher 2009 current tax related to the wind-up of the Company’s Canadian oil and gas partnership
which occurred in conjunction with the Split Transaction.

ANNUAL OPERAtING EARNINGS
                                                                                              Pro Forma                                     Consolidated
                                                                2010	                 2009	               2008	                     2009	                  2008
                                                                       Per                    Per                Per                          Per                              Per
($ millions, except per share amounts)   (1)
                                                                     share                  share              share                        share                            share
Net Earnings, as reported                                $ 1,499 $ 2.03	        $		 749	 $		1.00	 $		3,405	 $		4.53	          $		1,862	 $		2.48	 $		5,944	 $		7.91
Add back (losses) and deduct gains:
    Unrealized hedging gain (loss), after tax                 634       0.86	   	 (1,352)	 	 (1.80)	 	 1,299	 	 1.73	         	 (1,792)	 	 (2.38)	 	 1,818	 	 2.42
    Non-operating foreign exchange gain (loss),
      after tax                                               200       0.27	   	   334	 	 0.45	 	     (598)	 	 (0.80)	 	         159	 	 0.21	 	      (378)	 	 (0.50)
    Gain (loss) on discontinuance, after tax                    –          –          –       –          99      0.13               –       –           99      0.13
Operating Earnings                                       $    665 $ 0.90	       $		1,767	 $		2.35	 $		2,605	 $		3.47	         $		3,495	 $		4.65	 $		4,405	 $		5.86
(1) Per share represents per common share – diluted.

2010 versus 2009
Operating	Earnings	of	$665	million	decreased	$1,102	million	from	pro	forma	2009	primarily	due	to	lower	realized	financial	hedging	gains,	higher	DD&A,	higher	
transportation expense and higher interest expense, partially offset by higher realized commodity prices and production volumes. Further to the items described
in the Cash Flow section, DD&A increased $472 million as a result of increased production volumes and a higher U.S./Canadian dollar exchange rate.

Operating	Earnings	decreased	$2,830	million	from	consolidated	2009	primarily	due	to	the	factors	described	above	and	the	inclusion	of	the	Cenovus	results	in	
the 2009 consolidated comparatives.




                                                                                                                                 Annual Report 2010 / Encana Corporation                          49
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     2009 versus 2008
     Pro	forma	Operating	Earnings	of	$1,767	million	decreased	$838	million	from	pro	forma	2008	primarily	due	to	lower	realized	commodity	prices	and	production	
     volumes, partially offset by higher realized financial hedging gains, lower DD&A, lower production and mineral taxes, lower operating expenses and lower
     transportation	expense.	Consolidated	Operating	Earnings	of	$3,495	million	decreased	$910	million	from	consolidated	2008	primarily	due	to	these	factors	as	well	
     as higher Cash Flow from discontinued operations and a decrease in future income tax related to the wind-up of the Company’s Canadian oil and gas partnership
     and other items associated with the Split Transaction.

     QUARtERLy OPERAtING EARNINGS
                                                                                                                        Three months ended December 31

                                                                                                     2010                     Pro Forma 2009              Consolidated 2009
     ($ millions, except per share amounts)   (1)
                                                                                                          Per share                     Per share                    Per share
     Net Earnings, as reported                                                                $    (42)     $ (0.06)	        $		 233	     $		0.31	        $	 636	     $		0.85
     Add back (losses) and deduct gains:
         Unrealized hedging gain (loss), after tax                                                (269)       (0.36)	        	 (135)	 	 (0.18)	           	 (200)	 	 (0.27)
         Non-operating foreign exchange gain (loss), after tax                                     159         0.21               (5)   (0.01)                (19)   (0.02)
     Operating Earnings                                                                       $    68       $ 0.09	          $		 373	     $		0.50	        $		 855	    $		1.14
     (1) Per share represents per common share – diluted.

     Q4 2010 versus Q4 2009
     Operating	Earnings	of	$68	million	decreased	$305	million	from	pro	forma	2009	primarily	due	to	lower	realized	financial	hedging	gains,	lower	realized	commodity	
     prices, higher DD&A and higher future income taxes, partially offset by higher production volumes. Further to the items described in the Cash Flow section, DD&A
     increased $110 million as a result of higher production volumes.

     Operating	Earnings	decreased	$787	million	from	consolidated	2009	primarily	due	to	the	factors	described	above	and	the	inclusion	of	the	Cenovus	results	in	the	
     2009 consolidated comparatives.

     ANNUAL NEt EARNINGS
     2010 versus 2009
     Net Earnings of $1,499 million increased $750 million from pro forma 2009 primarily due to higher realized commodity prices, higher combined realized and
     unrealized financial hedging gains and higher production volumes, partially offset by higher DD&A, higher transportation expense, higher interest expense and lower
     non-operating foreign exchange gains. Further to the items discussed in the Cash Flow and Operating Earnings sections, in the year ended December 31, 2010:

     •	 Unrealized	financial	hedging	gains	were	$634	million	after	tax	compared	to	losses	of	$1,352	million	after	tax	in	2009.

     •	 Non-operating	foreign	exchange	gains	were	$200	million	after	tax	compared	to	gains	of	$334	million	after	tax	in	2009.	These	gains	primarily	result	from	
        the revaluation of long-term debt due to fluctuation of the U.S./Canadian dollar exchange rate and settlement of intercompany transactions.

     Net	Earnings	decreased	$363	million	from	consolidated	2009	primarily	due	to	the	factors	described	above	and	the	inclusion	of	the	Cenovus	results	in	the	
     2009 consolidated comparatives.

     2009 versus 2008
     Pro	forma	Net	Earnings	of	$749	million	decreased	$2,656	million	from	pro	forma	2008	primarily	due	to	lower	realized	commodity	prices,	production	volumes	
     and combined realized and unrealized financial hedging gains. These were partially offset by higher non-operating foreign exchange gains, lower DD&A and lower
     upstream	expenses.	Consolidated	Net	Earnings	of	$1,862	million	decreased	$4,082	million	from	consolidated	2008	primarily	due	to	these	factors,	partially	offset	
     by higher Net Earnings from discontinued operations and a decrease in future income tax related to the wind-up of the Company’s Canadian oil and gas
     partnership and other items associated with the Split Transaction.

     Summary of Hedging Impacts on Net Earnings
                                                                                                                                 Year ended December 31

                                                                                                                                Pro Forma                     Consolidated
     ($ millions)                                                                                          2010	         	 2009	        	 2008	          	 2009	     	 2008
     Unrealized Hedging Gains (Losses), after tax             (1)
                                                                                                     $      634	            (
                                                                                                                         $		1,352)	 $	 1,299	            $	(1,792)	 $	 1,818
     Realized Hedging Gains (Losses), after tax                                                             808	         		 2,250	 	      	(6)	          	 	2,935	 		 (219)
     Hedging Impacts on Net Earnings                                                                 $ 1,442	            $		 898	       $		1,293	        $		1,143	   $	 1,599
     (1) Included in Corporate and Other financial results.

50   Encana Corporation / Annual Report 2010
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Commodity price volatility impacts Cash Flow. As a means of managing this commodity price volatility and its impact on cash flows, Encana enters into various
financial hedge agreements. Unsettled derivative financial contracts are recorded at the date of the financial statements based on the fair value of the contracts.
Changes in fair value result from volatility in forward curves of commodity prices and changes in the balance of unsettled contracts between periods. The changes
in fair value are recognized in revenue as unrealized hedging gains and losses. Realized hedging gains and losses are recognized in revenue when derivative
financial contracts are settled.

QUARtERLy NEt EARNINGS
Q4 2010 versus Q4 2009
Net Earnings, a loss of $42 million, decreased $275 million from pro forma 2009 primarily due to lower combined realized and unrealized financial hedging gains,
lower realized commodity prices and higher DD&A, partially offset by higher production volumes and higher non-operating foreign exchange gains. Further to the
items discussed in the Cash Flow and Operating Earnings sections, in the three months ended December 31, 2010:

•	 Unrealized	financial	hedging	losses	were	$269	million	after	tax	compared	to	losses	of	$135	million	after	tax	in	2009.

•	 Non-operating	foreign	exchange	gains	were	$159	million	after	tax	compared	to	losses	of	$5	million	after	tax	in	2009.	These	gains	and	losses	primarily	result	
   from the revaluation of long-term debt due to fluctuation of the U.S./Canadian dollar exchange rate and settlement of intercompany transactions.

Net	Earnings	decreased	$678	million	from	consolidated	2009	primarily	due	to	the	factors	described	above	and	the	inclusion	of	the	Cenovus	results	in	the	
2009 consolidated comparatives.

Summary of Hedging Impacts on Net Earnings
                                                                                                                            Three months ended December 31

                                                                                                                                     Pro Forma       Consolidated
($ millions)                                                                                                        2010                  2009              2009
Unrealized Hedging Gains (Losses), after tax (1)                                                                $ (269)               $ (135)                $ (200)
Realized Hedging Gains (Losses), after tax                                                                         209	               	 328	                 	 423
Hedging Impacts on Net Earnings                                                                                 $    (60)             $   193                $ 223
(1) Included in Corporate and Other financial results.

SUMMARy OF CONSOLIDAtED NEt EARNINGS

($ millions, except per share amounts)              2010      Q4        Q3        Q2       Q1	    	 2009		 	    Q4	 	       Q3	 	      Q2	 	      Q1	    	 2008
Continuing Operations
Net Earnings from
  Continuing Operations                         $ 1,499 $ (42) $ 569 $ (505) $ 1,477	             $		1,830	 $		 589	 $		 39	 $		 211	 $		 991	           $		6,499
    per share – basic                              2.03  (0.06)  0.77  (0.68)   1.97	             	 2.44	 	 0.78	 	 0.05	 	 0.28	 	 1.32	                	 8.66
    per share – diluted                            2.03  (0.06)  0.77  (0.68)   1.97	             	 2.44	 	 0.78	 	 0.05	 	 0.28	 	 1.32	                	 8.64

Total Consolidated
Net Earnings                                       1,499      (42)     569      (505)   1,477	    	 1,862	 	    636	 	       25	 	    239	 	      962	   	 5,944
    per share – basic                               2.03    (0.06)    0.77     (0.68)    1.97	    	 2.48	 	    0.85	 	     0.03	 	   0.32	 	     1.28	   	 7.92
    per share – diluted                             2.03    (0.06)    0.77     (0.68)    1.97	    	 2.48	 	    0.85	 	     0.03	 	   0.32	 	     1.28	   	 7.91

Total Assets                                     34,020	 	       	 	       	 	       	 	      	   	 33,827	 	      	 	      	 	      	 	      	          	 47,247
Total Long-Term Debt                              7,629 	        	 	       	 	       	 	      	   	 7,768	 	       	 	      	 	      	 	      	          	 9,005
Revenues, After Royalties                         8,870    1,431     2,425     1,469     3,545	   	 11,114	 	 2,712	 	 2,271	 	 2,449	 	 3,682	          	 21,053

The comparative consolidated results prior to the November 30, 2009 Split Transaction include Cenovus and are, therefore, not comparable to the current
year	results.	Net	Earnings	from	Continuing	Operations	for	2009	and	2008	include	results	for	Canada	–	Other	upstream	assets	transferred	to	Cenovus.	Total	
Consolidated Net Earnings includes results for U.S. Downstream Refining assets transferred to Cenovus, which are reported as discontinued operations.




                                                                                                                               Annual Report 2010 / Encana Corporation               51
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     rEsErvEs QuantitiEs
     Since inception, Encana has retained independent qualified reserves evaluators (“IQREs”) to evaluate and prepare reports on 100 percent of the Company’s
     natural gas and liquids reserves annually. The Company has a Reserves Committee of independent Board of Directors members, which reviews the qualifications
     and appointment of the IQREs. The Reserves Committee also reviews the procedures for providing information to the IQREs. All booked reserves are based upon
     annual evaluations by the IQREs.

     Encana’s disclosure of reserves data is in accordance with Canadian securities regulatory requirements, specifically National Instrument 51-101 (“NI 51-101”).
     Encana’s 2010 disclosure includes proved reserves quantities before and after royalties employing forecast prices and costs.

     In previous years, the Company’s disclosure was in accordance with U.S. regulatory requirements as permitted by an exemption order issued by the CSA which
     has expired. The Company’s 2010 reserves disclosure in accordance with U.S. regulatory requirements is available in Encana’s Annual Information Form (“AIF”).

     Proved Reserves Reconciliation – Before Royalties
                                                                                             Natural Gas                            Liquids
                                                                                                (Bcf)                               (MMbbls)

                                                                                               United                               United                     Total
     (forecast prices)                                                           Canada        States        Total     Canada       States       Total             (Bcfe)

     December	31,	2009	                                                           6,111	       8,172	 14,283	             41.6	       55.7	      97.3	       14,867
     		 Extensions		                                                              1,117	       1,279	   2,396	            21.1	         2.4	     23.5	        2,538
     		 Discoveries	                                                                  60	         43	     103	              0.6	          –	       0.6	         106
     		 Technical	revisions	                                                          19	      1,002	   1,021	              6.7	        0.5	       7.2	       1,064
     		 Economic	factors	                                                            (90)	        21	      (69)	           (0.1)	      (0.1)	     (0.2)	         (70)
     		 Acquisitions	                                                               132	          92	     224	              0.5	        0.6	       1.1	         230
     		 Dispositions	                                                                (90)	      (455)	   (545)	            (2.8)	      (7.3)	   (10.1)	        (605)
     		 Production	                                                                (504)	       (855)	 (1,359)	            (5.7)	      (4.4)	   (10.1)	      (1,420)
     December	31,	2010		                                                          6,755	       9,299	      16,054	        61.9	       47.4	     109.3	       16,710

     Encana’s 2010 proved reserves before royalties of approximately 17 Tcfe increased by 12 percent over 2009 due to ongoing development and delineation
     activities.	Additions	of	approximately	3.6	Tcfe,	before	acquisitions	and	divestitures,	replaced	256	percent	of	production	before	royalties	during	the	year.

     Proved Reserves Reconciliation – After Royalties
                                                                                             Natural Gas                            Liquids
                                                                                                (Bcf)                               (MMbbls)

                                                                                               United                               United                     Total
     (forecast prices)                                                           Canada        States        Total     Canada       States       Total             (Bcfe)

     December	31,	2009		                                                          5,675	       6,605	 12,280	             37.2	       45.1	      82.3	       12,774
     	 Extensions	and	discoveries	                                                1,115	       1,678	   2,793	            11.1	         4.3	     15.4	        2,885
        Revisions (1)	                                                               (50)	       177	     127	            13.0	        (2.6)	    10.4	          189
     	 Acquisitions	                                                                124	          82	     206	              0.4	        0.5	       0.9	         212
     	 Dispositions	                                                                 (83)	      (386)	   (469)	            (2.1)	      (5.3)	     (7.4)	       (513)
     	 Production	                                                                 (483)	       (679)	 (1,162)	            (4.8)	      (3.5)	     (8.3)	     (1,212)
     December	31,	2010		                                                          6,298	       7,477	      13,775	        54.8	       38.5	      93.3	       14,335
     (1) Includes economic factors.

     Encana’s 2010 proved reserves after royalties of approximately 14.3 Tcfe increased by 12 percent over 2009 due to ongoing development and delineation
     activities. Additions of approximately 3.1 Tcfe, before acquisitions and divestitures, replaced 254 percent of production after royalties during the year.




52   Encana Corporation / Annual Report 2010
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Forecast Prices
                                                                                                            Natural Gas                                       Liquids
                                                                                                    Henry Hub                  AECO                         WTI         Edmonton (1)
                                                                                                     ($/MMBtu)            (C$/MMBtu)                    ($/bbl)            (C$/bbl)

2009 Price Assumptions
	 2010	                                                                                                   5.50	                5.49	                   75.00	                    76.84
	 2011	-	2014	                                                                                            6.50	         6.39	-	6.04	                   75.00	                    76.84
	 Thereafter	                                                                                             6.50	                6.04	                   75.00	                    76.84

2010 Price Assumptions
	 2011	                                                                                                  4.73	                 4.35	                    79.53	             81.93
   2012 - 2015                                                                                    5.33 - 6.01	          4.94	- 5.78	            82.65	-	86.68	     85.88	-	91.61
	 Thereafter	                                                                                     6.18 - 6.63	          5.97 - 6.48	                    83.72	             88.37
(1) Mixed Sweet Blend at Edmonton.


PrOduCtiOn and nEt CaPital invEstmEnt

PRODUCtION VOLUMES (AFtER ROyALtIES)

(average daily)                                 2010           Q4          Q3          Q2          Q1	      	 2009		 	         Q4	 	      Q3	 	       Q2	 	       Q1	    	 2008
Produced Gas (MMcf/d)    (1)

   Canadian Division                            1,323      1,395       1,390       1,327       1,177	          1,224	      1,071	      1,201	      1,343	     1,281	             1,300
   USA Division                                 1,861      1,835       1,791       1,875       1,946	          1,616	      1,616	      1,524	      1,581	     1,746	             1,633
                                                3,184      3,230       3,181       3,202       3,123	          2,840	      2,687	      2,725	      2,924	     3,027	             2,933
Liquids (bbls/d) (1)
    Canadian Division                         13,149      11,327      14,262      13,462     13,558	          15,880	 12,477	 15,909	 17,624	 17,567	                     19,980
    USA Division                               9,638       9,206       9,142      10,112     10,108	          11,317	 11,586	 10,325	 11,699	 11,671	                     13,350
                                              22,787      20,533      23,404      23,574     23,666	          27,197	 24,063	 26,234	 29,323	 29,238	                     33,330
Total (MMcfe/d) (1)
    Canadian Division                           1,402      1,463       1,476       1,408       1,258	          1,319	      1,145	      1,297	      1,449	     1,387	             1,419
    USA Division                                1,919      1,890       1,846       1,936       2,007	          1,684	      1,686	      1,586	      1,651	     1,816	             1,713
                                                3,321      3,353       3,322       3,344       3,265	          3,003	      2,831	      2,883	      3,100	     3,203	             3,132

Canada – Other (MMcfe/d) (2)                          –          –           –          –           –	         1,362	        970	      1,504	      1,502	     1,472	             1,507
Total Volumes (MMcfe/d)                         3,321      3,353       3,322       3,344       3,265	          4,365	      3,801	      4,387	      4,602	     4,675	             4,639
(1)	Represents	pro	forma	volumes	for	2009	and	2008.
(2) Canada – Other represents former volumes from Canadian Plains and Integrated Oil – Canada operations which were transferred to Cenovus.

2010 versus 2009
Average	production	volumes	of	3,321	MMcfe/d	increased	11	percent,	or	318	MMcfe/d,	from	pro	forma	2009	volumes.	Higher	volumes	were	primarily	due	
to increased production in certain USA and Canadian Division key resource plays due to successful drilling programs and bringing on shut-in and curtailed
production. The increase was partially offset by lower 2010 volumes of approximately 130 MMcfe/d resulting from net divestitures in both the Canadian and
USA Divisions.

2009 versus 2008
Pro	forma	average	production	volumes	of	3,003	MMcfe/d	decreased	4	percent,	or	129	MMcfe/d,	from	pro	forma	2008.	Lower	volumes	were	primarily	due	
to shut-in and curtailed production, delayed completions and tie-ins due to the low-price environment and natural declines in conventional properties.

Q4 2010 versus Q4 2009
Average	production	volumes	of	3,353	MMcfe/d	increased	18	percent,	or	522	MMcfe/d,	from	pro	forma	2009	volumes.	Higher	volumes	were	primarily	due	to	
increased production in certain USA and Canadian Division key resource plays due to successful drilling programs and bringing on shut-in and curtailed production.
The increase was partially offset by lower 2010 volumes of approximately 90 MMcfe/d resulting from net divestitures in both the Canadian and USA Divisions.




                                                                                                                                              Annual Report 2010 / Encana Corporation              53
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     NEt CAPItAL INVEStMENt
                                                                                                                                           Pro Forma              Consolidated
     ($ millions)                                                                                                     2010	          	 2009	     	 2008	     	 2009	     	 2008
     Canadian Division                                                                                            $ 2,211	           $		1,869	   $	 2,459	   $		1,869	   $		2,459
     USA Division                                                                                                   2,499	           	 1,821	    	 2,682	    	 1,821	    	 2,682
     Market Optimization                                                                                                2                   –           1           2          17
     Corporate & Other                                                                                                 61	           	     65	   	 113	      	     85	   	 165
     Canada – Other (1)                                                                                                 –	           	      –	   	      –	   	 848	      	 1,500
     Capital Investment                                                                                              4,773	          	 3,755	    	 5,255	    	 	4,625	   	 6,823
     Acquisitions                                                                                                       733	         	 260	 	 	1,174	        	 260	 	 1,174
     Divestitures                                                                                                      (883)	        	 (1,075)	 	 (857)	     	 (1,161)	 	 (857)
     Net Acquisitions and Divestitures                                                                                 (150)	        	   (815)	 	    317	    	   (901)	 	    317
     Canada – Other                (1,2)
                                                                                                                           –               –           –          (14)       (47)
     Discontinued Operations (3)                                                                                           –	        	     –	    	     –	    	   829	    	   478
     Net Capital Investment                                                                                       $ 4,623            $ 2,940     $ 5,572     $ 4,539     $ 7,571
     (1) Canada – Other represents former Canadian Plains and Integrated Oil – Canada operations that were transferred to Cenovus.
     (2) Represents net acquisitions and divestitures for Canada – Other.
     (3) The former Integrated Oil U.S. Downstream Refining operations transferred to Cenovus are included in discontinued operations.

     2010 versus 2009
     Capital investment during 2010 was primarily focused on continued development of Encana’s North American key resource plays. Capital investment of $4,773
     million was higher compared to pro forma 2009 primarily due to increased spending on developing Haynesville and Horn River and an increase in the average
     U.S./Canadian dollar exchange rate.

     Acquisitions include land and property purchases that are complementary to existing Company assets. In 2010, total acquisitions were $592 million
     (2009	–	$190	million)	in	the	Canadian	Division	and	$141	million	(2009	–	$46	million)	in	the	USA	Division.

     In	2010,	the	Company	had	non-core	asset	divestitures	for	proceeds	of	$288	million	(2009	–	$1,000	million)	in	the	Canadian	Division	and	$595	million	
     (2009 – $73 million) in the USA Division.

     Corporate capital investment was primarily directed towards business information systems, leasehold improvements and office furniture. In February 2007,
     Encana announced that it had entered into a 25-year lease agreement with a third-party developer for The Bow office project, which is currently under
     construction. Cost-of-design changes to the building and leasehold improvements are shared equally by Encana and Cenovus.

     2009 versus 2008
     Pro	forma	capital	investment	of	$3,755	million	was	lower	compared	to	pro	forma	2008	primarily	due	to	reduced	upstream	activity	levels	as	well	as	a	decrease	
     in the average U.S./Canadian dollar exchange rate.




54   Encana Corporation / Annual Report 2010
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divisiOnal rEsults

CANADIAN DIVISION

Operating Cash Flow and Netbacks
                                                                                                        2010	                             2009	                           2008
($ millions, except $/Mcfe)                                                                                 ($/Mcfe)                          ($/Mcfe)                           ($/Mcfe)

Revenues, Net of Royalties and excluding Hedging                                                 $ 2,350    $ 4.47	            $	 1,962	      $		4.02	         $	 4,541	 $		8.63
Realized Financial Hedging Gain (Loss)                                                               479	   	     	            	 1,400	       	      	         	 (186)	
Expenses
   Production and mineral taxes                                                                         8       0.02	          	      14	     	 0.03	          	      33	       	 0.06
   Transportation                                                                                     197       0.38                 154        0.32                 239          0.41
   Operating                                                                                          561       1.06	          	     536	     	 1.09	          	     609	       	 1.13
Operating Cash Flow / Netback                                                                    $ 2,063    $ 3.01	            $		2,658	      $		2.58	         $		3,474	        $		7.03
Realized Financial Hedging Gain (Loss)                                                                        0.93	            	       	      	 2.93	          	       	        	 (0.36)
Netback including Realized Financial Hedging                                                                $ 3.94	            	          	   $		5.51	         	           	    $		6.67


2010 versus 2009
Operating	Cash	Flow	of	$2,063	million	decreased	$595	million	primarily	due	to	lower	realized	financial	hedging	gains,	higher	transportation	expenses	and	
higher operating expenses, partially offset by higher realized commodity prices and production volumes. In the year ended December 31, 2010:

•	 Realized	financial	hedging	gains	were	$479	million	compared	to	$1,400	million	in	2009	on	a	before	tax	basis.

•	 Transportation	expenses	increased	$43	million	and	operating	expenses	increased	$25	million	primarily	due	to	higher	production	volumes	and	a	higher	
   U.S./Canadian dollar exchange rate.

•	 Higher	realized	commodity	prices,	excluding	the	impact	of	financial	hedging,	resulted	in	an	increase	of	$272	million	in	revenues,	which	reflects	the	changes	
   in benchmark prices and basis differentials.

•	 Average	production	volumes	of	1,402	MMcfe/d	increased	6	percent	compared	to	1,319	MMcfe/d	in	2009,	resulting	in	an	increase	of	$116	million	in	revenues.

2009 versus 2008
Operating	Cash	Flow	of	$2,658	million	decreased	$816	million	primarily	due	to	lower	realized	commodity	prices	and	production	volumes,	partially	offset	by	
higher realized financial hedging gains, lower transportation expenses and lower operating expenses due to the lower U.S./Canadian dollar exchange rate.

Results by Key Area
                                                                 Daily Production                               Capital                                   Drilling Activity
                                                                (MMcfe/d after royalties)                       ($ millions)                                 (net wells drilled) (1)

                                                           2010	         2009	           2008	    	 2010	 	 2009	 	 2008	                          	 2010	          2009	                     2008
Greater Sierra    (2)
                                                            236	           204	           226	    $    515	 $		 264	 $		           392	                47	             57	                             106
Cutbank Ridge (3)                                           401            314            300          499	 	 439	 	               690	                62	             71	                              82
Bighorn                                                     239	           175	           189	    	    345      272                401                 51	             69	                              64
CBM                                                         317	           316	           304	         443	 	 292	 	               358	             1,044	            490	                             698
Key Resource Plays                                        1,193         1,009            1,019        1,802	 	 1,267	 	 1,841	                      1,204	            687	                             950
Other                                                       209           310              400          409	 	 602	 	 618	                         	    2              12                              114
Total Canadian Division                                   1,402         1,319            1,419    $ 2,211	 $	 1,869	 $	 2,459	                      1,206	            699	              1,064
(1) Net drilling activity reflects changes in working interest and minor divestitures.
(2)	2010	includes	Horn	River,	which	had	production	of	29	MMcfe/d	(2009	–	9	MMcfe/d,	2008	–	4	MMcfe/d),	capital	of	$406	million	(2009	–	$179	million,	2008	–	$63	million)	
	 and	16	net	wells	drilled	(2009	–	21	net	wells,	2008	–	5	net	wells).	
(3)	2010	includes	Montney,	which	had	production	of	274	MMcfe/d	(2009	–	173	MMcfe/d,	2008	–	134	MMcfe/d),	capital	of	$405	million	(2009	–	$389	million,	2008	–	$277	million)	
    and 54 net wells drilled (2009	–	64	net	wells,	2008	–	61	net	wells).	




                                                                                                                                              Annual Report 2010 / Encana Corporation                           55
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     Production Volumes
         Produced Gas (MMcf/d)            Liquids (MMcfe/d)             •	 Average	production	volumes	of	1,463	MMcfe/d	increased	28	percent	in	the	fourth	quarter	of	
     Q1 2009                                                               2010 compared to the same period of 2009. Average production volumes of 1,402 MMcfe/d
     Q2 2009                                                               in	2010	increased	6	percent	compared	to	2009.
     Q3 2009
     Q4 2009                                                            •	 This	increase	in	production	is	primarily	due	to	successful	drilling	programs	at	Cutbank	Ridge	and	
     Q1 2010                                                               Bighorn, bringing on shut-in and curtailed production volumes and completing wellhead upgrade
     Q2 2010                                                               maintenance. This is partially offset by lower volumes of approximately 10 MMcfe/d in the fourth
     Q3 2010
                                                                           quarter	and	65	MMcfe/d	in	2010	due	to	net	divestitures.	
     Q4 2010
                   0                400    800          1,200   1,600

     Capital Investment
     In 2009 and 2010, capital investment was primarily focused on the Canadian Division key resource plays, as well as Deep Panuke.

     USA DIVISION

     Operating Cash Flow and Netbacks
                                                                                                      2010	                       2009	                       2008
     ($ millions, except $/Mcfe)                                                                           ($/Mcfe)                    ($/Mcfe)                    ($/Mcfe)

     Revenues, Net of Royalties and excluding Hedging                                         $ 3,577      $ 4.94	        $		2,525	    $		3.92	       $		5,413	   $		8.17
     Realized Financial Hedging Gain                                                              698	     	     	        	 2,012	     	      	       	 216	
     Expenses
        Production and mineral taxes                                                               209        0.30	       	    118	    	 0.19	        	   370	    	 0.59
        Transportation                                                                             662        0.95	       	    530	    	 0.86	        	   502	    	 0.80
        Operating                                                                                  468        0.56	       	    434	    	 0.53	        	   618	    	 0.56
     Operating Cash Flow / Netback                                                            $ 2,936      $ 3.13	        $		3,455	    $		2.34	       $		4,139	   $		6.22
     Realized Financial Hedging Gain                                                                         1.00                         3.27                       0.34
     Netback including Realized Financial Hedging                                                          $ 4.13	        	        	   $		5.61	       	       	   $		6.56


     2010 versus 2009
     Operating	Cash	Flow	of	$2,936	million	decreased	$519	million	primarily	due	to	lower	realized	financial	hedging	gains,	higher	transportation	expenses	and	
     higher production and mineral taxes, partially offset by higher realized commodity prices and production volumes. In the year ended December 31, 2010:

     •	 Realized	financial	hedging	gains	were	$698	million	compared	to	$2,012	million	in	2009	on	a	before	tax	basis.

     •	 Transportation	expenses	increased	$132	million	primarily	due	to	increased	production	volumes	and	transporting	volumes	further	to	obtain	higher	price	
        realizations.

     •	 Production	and	mineral	taxes	increased	$91	million	primarily	due	to	higher	natural	gas	prices	and	a	reduction	in	production	tax	credits.

     •	 Higher	realized	commodity	prices,	excluding	the	impact	of	financial	hedging,	resulted	in	an	increase	of	$742	million	in	revenues,	which	reflects	the	changes	
        in benchmark prices and basis differentials.

     •	 Average	production	volumes	of	1,919	MMcfe/d	increased	14	percent	compared	to	1,684	MMcfe/d	in	2009,	resulting	in	an	increase	of	$305	million	in	revenues.

     2009 versus 2008
     Operating	Cash	Flow	of	$3,455	million	decreased	$684	million	primarily	due	to	lower	realized	commodity	prices	and	production	volumes,	partially	offset	by	
     higher realized financial hedging gains, lower production and mineral taxes and lower operating expenses.




56   Encana Corporation / Annual Report 2010
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Results by Key Area
                                                                 Daily Production                                  Capital                                        Drilling Activity
                                                                (MMcfe/d after royalties)                         ($ millions)                                     (net wells drilled) (1)

                                                           2010	         2009	           2008	       	 2010	 	 2009	 	 2008	                           	 2010	            2009	                     2008
Jonah                                                       559	           601	           635	       $     374	 $		 346	 $		          526	               112	               108	                             175
Piceance                                                    458            373            400              224	 	 183	 	              525	               125	               129	                             328
East Texas                                                  348            324            335              206	 	 343	 	              640	             	 16	                 38	                              78
Haynesville                                                 303             71             10            1,261      541               137                106                 49                                7
Fort Worth                                                  124            139            145               93      103               275                 30	                26	                              83
Key Resource Plays                                        1,792	        1,508	           1,525	      	 2,158	 	 1,516	 	 2,103	                             389	            350	                             671
Other                                                       127	          176	             188	      	 341        305      579                               59              40                               79
Total USA Division                                        1,919	        1,684	           1,713	      $ 2,499	 $		1,821	 $		2,682	                           448             390                              750
(1) Net drilling activity reflects changes in working interest and minor divestitures.

Production Volumes
    Produced Gas (MMcf/d)          Liquids (MMcfe/d)                     •	 Average	production	volumes	of	1,890	MMcfe/d	increased	12	percent	in	the	fourth	quarter	of	2010	
Q1 2009                                                                     compared to the same period of 2009. Average production volumes of 1,919 MMcfe/d increased
Q2 2009                                                                     14 percent in 2010 compared to 2009.
Q3 2009
Q4 2009                                                                  •	 This	increase	in	production	is	primarily	due	to	drilling	and	operational	success	in	Haynesville	and	
Q1 2010                                                                     Piceance as well as bringing on shut-in and curtailed production volumes. This is partially offset
Q2 2010                                                                     by	natural	declines	and	lower	volumes	of	approximately	80	MMcfe/d	in	the	fourth	quarter	and	
Q3 2010
                                                                            65	MMcfe/d	in	2010	due	to	net	divestitures.	
Q4 2010
          0               700              1,400            2,100

Capital Investment
In 2009, capital investment was primarily focused on Haynesville, Jonah and East Texas. In 2010, capital investment was focused on Haynesville as well as
other USA Division key resource plays.

CANADA – OthER
                                                                                                                                        Pro Forma                           Consolidated
($ millions)                                                                                                     2010	           	 2009	      	 2008	               	 2009	          	 2008
Revenues, Net of Royalties and excluding Hedging                                                             $      –	           $	      –	   $	       –	           $	 3,239	        $		6,017
Realized Financial Hedging Gain (Loss)                                                                              –	           	       –	   	        –	           	 984	           	 	(322)
Expenses
   Production and mineral taxes                                                                                     –                    –             –                    39        75
   Transportation                                                                                                   –	           	       –	   	        –	           	     596	 		 963
   Operating                                                                                                        –	           	       –	   	        –	           	     582	 	 	724
   Purchased product                                                                                                –	           	       –	   	        –	           	      (85)	 	 	(151)
Operating Cash Flow                                                                                          $      –	           $	      –	   $	       –	           $		3,091	        $		4,084

Canada – Other is comprised of upstream results from Canadian Plains and Integrated Oil – Canada operations, which were transferred to Cenovus as part
of the November 30, 2009 Split Transaction. Under full cost accounting rules, the historical results are presented in continuing operations.




                                                                                                                                                   Annual Report 2010 / Encana Corporation                            57
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     MARkEt OPtIMIzAtION
                                                                                                                                             Pro Forma                    Consolidated
     ($ millions)                                                                                                     2010	          	 2009	       	 2008	         	 2009	       	 2008
     Revenues                                                                                                     $    797	          $		 861	      $	 1,529	       $		1,607	     $		2,655
     Expenses
        Operating                                                                                                       33	          	      16	    	    27	        	    26	      	    45
        Purchased product                                                                                              739	          	     820	    	 1,476	        	 1,545	      	 2,577
     Operating Cash Flow                                                                                                 25	         	      25	    	         26	   	      36	    	      33
        DD&A                                                                                                             11                 10               11           20            15
     Segment Income                                                                                               $      14	         $		    15	    $	    	15	      $		    16	    $		    18

     Market Optimization revenues and purchased product expenses relate to activities that provide operational flexibility for transportation commitments, product type,
     delivery points and customer diversification.

     Revenues and purchased product expenses decreased in 2010 compared to pro forma 2009 mainly due to lower volumes required for optimization, partially
     offset by higher commodity prices.

     Pro	forma	revenues	and	purchased	product	expenses	decreased	in	2009	from	2008	due	to	lower	commodity	prices,	partially	offset	by	higher	volumes	required	
     for	optimization.	Consolidated	revenues	and	purchased	product	expenses	decreased	in	2009	from	2008	also	due	to	these	factors.

     CORPORAtE AND OthER
                                                                                                                                             Pro Forma                    Consolidated
     ($ millions)                                                                                                     2010	          	 2009	       	 2008	         	 2009	       	 2008
     Revenues                                                                                                     $    969	            (
                                                                                                                                     $		2,028)	 $	 1,992	          $	(2,615)	 $		2,719
     Expenses
        Operating                                                                                                        (1)                22            (2)              49          (13)
        DD&A                                                                                                             77	         	     103	    	    108	       	     	143	   	     131
     Segment Income                                                                                               $    893	            (
                                                                                                                                     $		2,153)	 $	 1,886	          $	(2,807)	 $	 2,601

     Revenues primarily represent unrealized hedging gains or losses related to financial natural gas and liquids hedge contracts. DD&A includes amortization of
     corporate assets, such as computer equipment, office furniture and leasehold improvements.

     ExPENSES
                                                                                                                                            Pro Forma (1)                 Consolidated
     ($ millions)                                                                                                     2010	          	 2009	       	 2008	         	 2009	       	 2008
     Administrative                                                                                               $    359           $      359 $ 329              $     477 $ 447
     Interest, net                                                                                                     501	          	      371	 	 368	            	     405	 	 402
     Accretion of asset retirement obligation                                                                           46                   37       40                   71       77
     Foreign exchange (gain) loss, net                                                                                (216)	         	     (312)	 	 673	           	      (22)	 	 423
     (Gain) loss on divestitures                                                                                         2                    2     (143)                   2     (141)
     Total Corporate Expenses                                                                                     $    692	          $		 457	      $		1,267	       $		 933	      $		1,208
     (1) Pro Forma expenses exclude the costs related to the assets transferred to Cenovus and reflect adjustments for compensation and transaction costs.




58   Encana Corporation / Annual Report 2010
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2010 versus 2009
Total	corporate	expenses	of	$692	million	increased	$235	million	from	pro	forma	2009	as	a	result	of	higher	interest	expense	and	lower	foreign	exchange	gains.	
In the year ended December 31, 2010:

•	 Interest	expense	increased	primarily	due	to	a	lower	debt	carrying	value	used	to	determine	pro	forma	interest	for	2009.

•	 Foreign	exchange	gains	were	$216	million	compared	to	$312	million	in	2009,	primarily	resulting	from	the	revaluation	of	long-term	debt	due	to	fluctuation	
   of the U.S./Canadian dollar exchange rate offset by foreign exchange losses arising from intercompany transaction settlements and revaluations of monetary
   assets and liabilities.

Total corporate expenses decreased $241 million from consolidated 2009 primarily due to the factors described above and the inclusion of the Cenovus results
in the 2009 consolidated comparatives.

2009 versus 2008
Pro	forma	corporate	expenses	of	$457	million	decreased	$810	million	from	pro	forma	2008	as	a	result	of	foreign	exchange	gains	in	2009	compared	to	foreign	
exchange	losses	in	2008,	partially	offset	by	a	2008	gain	on	divestiture	related	to	interests	in	Brazil.	Consolidated	corporate	expenses	of	$933	million	decreased	
$275	million	from	consolidated	2008	primarily	due	to	these	factors.	

INCOME tAx
                                                                                                                        Pro Forma                   Consolidated
($ millions)                                                                                         2010	       	 2009	      	 2008	          	 2009	     	 2008
Current Income Tax                                                                               $ (213)	        $		 550	 $		 568	             $		1,908	 $		 997
Future Income Tax                                                                                   774	         	 (438)	 	 1,297	             	 (1,799)	 	 1,723
Total Income Tax                                                                                 $    561	       $		 112	     $		1,865	        $		 109	    $		2,720

Encana’s	effective	tax	rate	was	approximately	27	percent	for	2010,	13	percent	for	pro	forma	2009	and	35	percent	for	pro	forma	2008.	The	effective	tax	rate	
was	6	percent	for	consolidated	2009	and	30	percent	for	consolidated	2008.	The	effective	tax	rate	in	any	period	is	a	function	of	the	relationship	between	total	
tax (current and future) and the amount of net earnings before income taxes for the year. The effective tax rate differs from the statutory tax rate as it takes into
consideration permanent differences, adjustments to estimates, changes to tax rates and other tax legislation in each jurisdiction. Permanent differences are
comprised of a variety of items, including:

•	 The	non-taxable	portion	of	Canadian	capital	gains	or	losses;

•	 International	financing;	and

•	 Foreign	exchange	(gains)	losses	not	included	in	net	earnings.

Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiaries operate are subject to change. As a result,
there are usually tax matters under review. The Company believes that the provision for taxes is adequate.

2010 versus 2009
In 2010 compared to pro forma 2009:

•	 Current	income	tax	expense,	a	recovery	of	$213	million,	decreased	$763	million	primarily	due	to	lower	Cash	Flow	resulting	from	lower	realized	hedging	
   gains partially offset by higher realized commodity prices and production volumes. Higher capital expenditures also contributed to the decrease in current
   income tax.

•	 Total	income	tax	expense	of	$561	million	increased	$449	million	due	to	higher	net	earnings	before	income	tax	primarily	resulting	from	the	combined	impact	
   of realized and unrealized hedging gains and higher realized commodity prices and production volumes.

Total income tax expense in 2010 increased $452 million from consolidated 2009 primarily due to the factors described above and the inclusion of the Cenovus
upstream results in the 2009 consolidated comparatives.




                                                                                                                                 Annual Report 2010 / Encana Corporation             59
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     2009 versus 2008
     For	pro	forma	2009	compared	to	pro	forma	2008:

     •	 Current	income	tax	expense	of	$550	million	decreased	$18	million	primarily	due	to	lower	Cash	Flow	resulting	from	lower	realized	commodity	prices	and	
        production volumes, partially offset by higher realized hedging gains.

     •	 Total	income	tax	expense	of	$112	million	decreased	$1,753	million	primarily	due	to	lower	realized	commodity	prices	and	production	volumes	and	lower	
        combined realized and unrealized hedging gains.

     Consolidated	current	income	tax	expense	of	$1,908	million	increased	$911	million	from	consolidated	2008	primarily	due	to	the	wind-up	of	the	Company’s	
     Canadian oil and gas partnership which occurred in conjunction with the Split Transaction. Consolidated total income tax expense of $109 million decreased
     $2,611	million	from	consolidated	2008	primarily	due	to	lower	net	earnings	before	income	tax.		

     DEPRECIAtION, DEPLEtION AND AMORtIzAtION
                                                                                                                         Pro Forma                      Consolidated
     ($ millions)                                                                                    2010	        	 2009	         	 2008	          	 2009	      	 2008
     Canada                                                                                       $ 1,242	        $		1,096	       $		1,286	        $		1,980	    $		2,198
     USA                                                                                            1,912	        	 1,561	        	 1,691	         	 1,561	     	 1,691
     Market Optimization                                                                               11               10              11               20           15
     Corporate & Other                                                                                 77	        	 103	          	 108	           	 	143	      	 131
     Total DD&A                                                                                   $ 3,242	        	$	2,770	       $		3,096	        $		3,704	    $		4,035

     Encana uses full cost accounting for oil and gas activities and calculates DD&A on a country-by-country cost centre basis.

     2010 versus 2009
     Total DD&A of $3,242 million increased $472 million from pro forma 2009. The increase was the result of higher production volumes and a higher U.S./Canadian
     dollar exchange rate.

     DD&A	decreased	$462	million	from	consolidated	2009	primarily	due	to	inclusion	of	Cenovus	in	the	2009	consolidated	comparatives,	partially	offset	by	the	factors	
     described above.

     2009 versus 2008
     Pro	forma	DD&A	of	$2,770	million	decreased	$326	million	from	pro	forma	2008	due	to	lower	production	volumes	and	a	lower	U.S./Canadian	dollar	exchange	
     rate.	Consolidated	DD&A	of	$3,704	million	decreased	$331	million	from	consolidated	2008	due	to	lower	production	volumes	and	a	lower	U.S./Canadian	dollar	
     exchange rate.

     DISCONtINUED OPERAtIONS
     Encana has rationalized its operations to focus on upstream natural gas exploration and production activities in North America. Former U.S. Downstream Refining
     operations, which were transferred to Cenovus as a result of the November 30, 2009 Split Transaction, are reported as discontinued operations. Net earnings
     from	discontinued	operations	in	2009	was	$32	million	(2008	–	$555	million	loss).	

     liQuidity and CaPital rEsOurCEs
     ($ millions)                                                                                                      2010	                  	 2009	            	 2008
     Net Cash From (Used In)
         Operating activities                                                                                      $ 2,365	               $		 7,873	           $	 8,986
         Investing activities                                                                                        (4,729)	             	 (4,806)	           	 (7,542)
         Financing activities                                                                                        (1,284)	             	     835	           	 (1,439)
         Foreign exchange gain/(loss) on cash and cash equivalents held in foreign currency                               2                      19                  (33)
     Increase (Decrease) in Cash and Cash Equivalents                                                              $ (3,646)	             $	 3,921	            $		   (28)
     Pro	Forma	Net	Cash	from	Operating	Activities	                                                                 	          	           $		 5,041	           $		 6,224




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OPERAtING ACtIVItIES
Net	cash	from	operating	activities	in	2010	of	$2,365	million	decreased	$2,676	million	from	pro	forma	2009	of	$5,041	million.	This	decrease	is	a	result	of	items	
discussed in the Cash Flow section of this MD&A, as well as the change in non-cash working capital. The net change in non-cash working capital of ($1,990)
million for 2010 reflects a one time $1,775 million tax payment which included the incremental tax accrued in 2009 related to the wind-up of the Company’s
Canadian oil and gas partnership. The wind-up occurred in conjunction with the Split Transaction.

Net	cash	from	operating	activities	in	2009	decreased	from	2008	primarily	due	to	the	items	discussed	in	the	Cash	Flow	section	of	this	MD&A.

The	Company	had	a	working	capital	surplus	of	$78	million	at	December	31,	2010	compared	to	a	surplus	of	$1,550	million	at	December	31,	2009.	The	surplus	
in 2009 primarily resulted from the proceeds received in conjunction with the Split Transaction. Encana expects that it will continue to meet the payment terms
of its suppliers.

INVEStING ACtIVItIES
Net	cash	used	for	investing	activities	in	2010	of	$4,729	million	decreased	$77	million	compared	to	consolidated	2009,	which	included	$1,699	million	of	capital	
investment related to Cenovus operations. In 2010, capital investment for the Canadian and USA Divisions of $4,710 million increased $1,020 million and net
divestitures	decreased	$687	million	compared	to	2009.	Reasons	for	these	changes	are	discussed	under	the	Net	Capital	Investment	and	Divisional	Results	
sections of this MD&A. Capital investment for 2010 was funded by Cash Flow and existing cash and cash equivalents on hand at the beginning of the year.

Consolidated	net	cash	used	for	investing	activities	in	2009	of	$4,806	million	decreased	$2,736	million	from	2008	primarily	due	to	lower	capital	investment	
and an increase in net divestitures.

FINANCING ACtIVItIES

Credit Facilities and Shelf Prospectuses
Encana’s	total	long-term	debt,	including	current	portion,	was	$7,629	million	at	December	31,	2010	compared	to	$7,768	million	at	December	31,	2009.	In	2010,	
the	repayment	of	long-term	debt	was	$200	million	compared	to	a	net	repayment	of	$1,606	million	for	the	same	period	in	2009,	excluding	the	Cenovus	notes.	
During	2009,	in	conjunction	with	the	Split	Transaction,	Cenovus	completed	a	private	offering	of	unsecured	notes	for	net	proceeds	of	$3,468	million.	Upon	
completion of the Split Transaction, Cenovus used the proceeds to settle the Cenovus notes due to Encana.

Encana maintains two committed bank credit facilities and a Canadian and a U.S. dollar shelf prospectus.

As at December 31, 2010, Encana had available unused committed bank credit facilities in the amount of $5.1 billion.

•	 Encana	has	in	place	a	revolving	bank	credit	facility	for	C$4.5	billion	($4.5	billion)	that	remains	committed	through	October	2012.	

•	 One	of	Encana’s	U.S.	subsidiaries	has	in	place	a	revolving	bank	credit	facility	for	$565	million	that	remains	committed	through	February	2013.	

As	at	December	31,	2010,	Encana	had	available	unused	capacity	under	shelf	prospectuses	for	up	to	$6.0	billion.	

•	 Encana	has	in	place	a	shelf	prospectus	whereby	it	may	issue	from	time	to	time	up	to	C$2.0	billion,	or	the	equivalent	in	foreign	currencies,	of	debt	securities	
   in Canada. At December 31, 2010, C$2.0 billion ($2.0 billion) of the shelf prospectus remained unutilized, the availability of which is dependent upon market
   conditions. The shelf prospectus expires in June 2011.

•	 On	April	1,	2010,	Encana	renewed	a	shelf	prospectus	whereby	it	may	issue	from	time	to	time	up	to	$4.0	billion,	or	the	equivalent	in	foreign	currencies,	of	debt	
   securities in the United States. At December 31, 2010, $4.0 billion of the shelf prospectus remained unutilized, the availability of which is dependent upon
   market conditions. The shelf prospectus expires in May 2012.

Encana is currently in compliance with, and expects that it will continue to be in compliance with, all financial covenants under its credit facility agreements
and indentures.




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     Normal Course Issuer Bid
     Encana has received regulatory approval under Canadian securities law to purchase common shares under nine consecutive annual Normal Course Issuer Bids
     (“NCIB”). During 2010, the Company purchased 15.4 million common shares at an average price of approximately $32.42 for total consideration of approximately
     $499	million.	During	2009,	the	Company	did	not	purchase	any	of	its	common	shares.	During	2008,	the	Company	purchased	4.8	million	common	shares	for	total	
     consideration	of	approximately	$326	million.	

     Encana	is	entitled	to	purchase,	for	cancellation,	up	to	36.8	million	common	shares	under	the	current	NCIB,	which	commenced	December	14,	2010	and	
     terminates on December 13, 2011. Shareholders may obtain a copy of the Company’s Notice of Intention to make a Normal Course Issuer Bid by contacting
     investor.relations@encana.com.

     Dividends
     Encana pays quarterly dividends to shareholders at the discretion of the Board of Directors. Dividend payments in 2010 were $590 million (2009 – $1,051
     million;	2008	–	$1,199	million)	or	$0.80	per	share	(2009	–	$1.40	per	share;	2008	–	$1.60	per	share).	From	the	first	quarter	of	2008	to	the	completion	of	the	
     Split Transaction, Encana paid a quarterly dividend of $0.40 per share. On December 31, 2009, after the Split Transaction, Encana paid a quarterly dividend of
     $0.20 per share. Encana continued to pay a quarterly dividend of $0.20 per share in 2010. On February 9, 2011, the Board of Directors declared a dividend
     of $0.20 per share payable on March 31, 2011.

     Outstanding Share Data
     As	at	December	31,	2010,	Encana	had	736.3	million	common	shares	outstanding	(2009	–	751.3	million;	2008	–	750.4	million).	As	at	February	15,	2011,	
     Encana	had	736.3	million	common	shares	outstanding.	

     Employees	have	been	granted	stock	options	to	purchase	common	shares	under	various	plans.	As	at	December	31,	2010,	there	were	approximately	36.8	million	
     outstanding stock options with Tandem Share Appreciation Rights (“TSARs”) attached (20.4 million exercisable). A TSAR gives the holder the right to receive a
     common share or a cash payment equal to the excess of the market price of Encana’s common share over the exercise price of the TSAR. The exercise of a TSAR
     for a cash payment does not result in the issuance of any additional Encana common shares and has no dilutive effect. Historically, most holders of these options
     have elected to exercise their TSARs for a cash payment.

     Financial Metrics
     Debt to Capitalization and Debt to Adjusted EBITDA are two ratios Management uses as measures of the Company’s overall financial strength to steward the
     Company’s overall debt position. Encana aims for a Debt to Capitalization ratio of less than 40 percent and a Debt to Adjusted EBITDA of less than 2.0 times. The
     Company’s	Debt	to	Capitalization	and	Debt	to	Adjusted	EBITDA	were	within	these	ranges	for	2010,	consolidated	2009	and	consolidated	2008.	The	Company’s	
     2009 pro forma Debt to Adjusted EBITDA was slightly higher than its range primarily due to the depressed natural gas prices experienced during 2009.

                                                                                                                         Pro Forma                  Consolidated
     (as at December 31)                                                                                              2010	    	 2009	         	 2009	     	 2008
     Debt to Capitalization (1,2)                                                                                     31%	     	   32%	        	   32%	    	   28%
     Debt to Adjusted EBITDA (1,2,3)                                                                                  1.4x	    	   2.1x	       	   1.3x	   	   0.6x
     (1) Debt is defined as long-term debt including current portion.
     (2) A non-GAAP measure, which is defined under the Non-GAAP Measures section of this MD&A.
     (3) Calculated on a trailing 12-month basis.




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COntraCtual ObligatiOns and COntingEnCiEs
CONtRACtUAL OBLIGAtIONS
The following table outlines the contractual obligations and commitments of the Company. In addition, the Company has made commitments related to its risk
management program as disclosed in Note 17 to the Consolidated Financial Statements. The Company has an obligation to fund its defined benefit pension
and	other	post-employment	benefit	plans	as	disclosed	in	Note	16	to	the	Consolidated	Financial	Statements.	The	Company	expects	its	2011	commitments	to	
be funded from Cash Flow.
                                                                                                         Expected Payment Date
($ millions)                                                                                       2011	     2012	to	2013	       2014	to	2015	                 2016+	                                     Total
Long-Term Debt 	   (1)
                                                                                             $	     500	         $		 1,003	          $		 1,000	          $		   5,154	          $		         7,657
Asset	Retirement	Obligation	                                                                 	       56	         	      99	          	      87	          	     4,454	          	           4,696
Pipeline	Transportation	and	Processing	                                                      	      687	         	 1,485	            	 1,493	            	     3,416	          	           7,081
Purchases of Goods and Services (2)	                                                         	      974	         	     564	          	     302	          	       400	          	           2,240
Office Rent (3,5)	                                                                           	       81	         	     383	          	     376	          	     3,206	          	           4,046
Capital	Commitments	                                                                         	      199	         	     120	          	       -	          	        38	          	             357
Total	                                                                                       $		 2,497	          $		 3,654	          $		 3,258	          $		 16,668	           $	 26,077	
Cenovus’s Share of Costs      (4,5)
                                      	                                                      $		    119	         $		    224	         $		    156	         $		 1,528	            $		 2,027
(1) Principal component only. See Note 12 to the Consolidated Financial Statements.
(2)	Includes	a	commitment	of	$667	million	related	to	the	Production	Field	Centre	for	the	Deep	Panuke	project	currently	recorded	as	an	asset	under	construction.	See	Note	4	to	the	
    Consolidated Financial Statements. This is expected to be recorded as an eight year capital lease upon commencement of operations.
(3) Primarily related to office space associated with The Bow. Tenant improvements for The Bow are included under Capital Commitments.
(4) Tenant costs associated with The Bow as well as current office space lease arrangements remain with Encana. Cenovus and Encana have entered into an agreement to share in the costs.
(5) The discounted	value	of	The	Bow	lease	payments	using	the	rate	implicit	in	the	lease	for	2016	and	beyond	is	$1,140	million	($570	million	net	of	Cenovus’s	share	of	the	costs).

Variable Interest Entities (“VIEs”)
In	2007	and	2008,	Encana	acquired	certain	land	and	property	in	Louisiana	and	Texas.	Three	transactions	were	facilitated	by	unrelated	parties.	These	unrelated	
parties held the majority of the assets in trust for the Company in anticipation of a qualifying like kind exchange for U.S. tax purposes for $457 million,
$101 million and $2.55 billion. During the six-month period following the transactions, each unrelated party represented an interest in a VIE whereby Encana
was the primary beneficiary and consolidated the respective unrelated party. Upon completion of each arrangement, the assets were transferred to Encana.

CONtINGENCIES
Legal Proceedings
Encana is involved in various legal claims associated with the normal course of operations and believes it has made adequate provision for such legal claims.

risk managEmEnt
Encana’s business, prospects, financial condition, results of operation and cash flows, and in some cases its reputation, are impacted by risks that are
categorized as follows:

•	 financial	risks;

•	 operational	risks;	and

•	 safety,	environmental	and	regulatory	risks.

Issues affecting, or with the potential to affect, Encana’s reputation are generally of a strategic nature or emerging issues that can be identified early and then
managed, but occasionally include unforeseen issues that arise unexpectedly and must be managed on an urgent basis. Encana takes a proactive approach
to the identification and management of issues that affect the Company’s reputation and has established consistent and clear policies, procedures, guidelines
and responsibilities for identifying and managing these issues.

Encana has a strong financial position and continues to implement its business model of focusing on developing low-risk and low-cost long-life resource plays,
which allows the Company to respond well to market uncertainties. Management adjusts financial and operational risk strategies to proactively respond to
changing economic conditions and to mitigate or reduce risk.




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     Financial Risks
     Encana defines financial risks as the risk of loss or lost opportunity resulting from financial management and market conditions that could have a positive
     or negative impact on Encana’s business.

     Financial risks include, but are not limited to:

     •	 market	pricing	of	natural	gas;

     •	 credit	and	liquidity;

     •	 foreign	exchange	rates;	and

     •	 interest	rates.

     Encana partially mitigates its exposure to financial risks through the use of various financial instruments and physical contracts. The use of derivative financial
     instruments is governed under formal policies and is subject to limits established by the Board of Directors (“Board”). All financial and foreign exchange
     agreements are with major financial institutions in Canada and the United States or with counterparties having investment grade credit ratings.

     Encana has in place policies and procedures with respect to the required documentation and approvals for the use of derivative financial instruments and
     specifically ties their use, in the case of commodities, to the mitigation of price risk to achieve investment returns and growth objectives, while maintaining
     prescribed financial metrics.

     To partially mitigate the natural gas commodity price risk, the Company enters into swaps, which fix NYMEX prices. To help protect against varying natural gas
     price differentials in various production areas, Encana has entered into swaps to manage the price differentials between these production areas and various sales
     points. Further information, including the details of Encana’s financial instrument, as of December 31, 2010, is disclosed in Note 17 to the Consolidated Financial
     Statements.

     Counterparty and credit risks are regularly and proactively managed. A substantial portion of Encana’s accounts receivable is with customers in the oil and gas
     industry. This credit exposure is mitigated through the use of Board-approved credit policies governing the Company’s credit portfolio and with credit practices
     that limit transactions according to counterparties’ credit quality and transactions that are fully collateralized.

     Encana closely monitors the Company’s ability to access cost effective credit and that sufficient cash resources are in place to fund capital investment and
     dividend payments. The Company manages liquidity risk through cash and debt management programs, including maintaining a strong balance sheet and
     significant unused credit facilities. The Company also has access to a wide range of funding alternatives at competitive rates, including commercial paper,
     capital market debt and bank loans.

     As a means of mitigating the exposure to fluctuations in the U.S./Canadian dollar exchange rate, Encana may enter into foreign exchange contracts. Gains
     or losses on these contracts are recognized when the difference between the average month spot rate and the rate on the date of settlement is determined.
     By maintaining U.S. and Canadian operations, Encana has a natural hedge to some foreign exchange exposure.

     Encana also maintains a mix of both U.S. dollar and Canadian dollar debt, which helps to offset the exposure to the fluctuations in the U.S./Canadian dollar
     exchange rate. In addition to direct issuance of U.S. dollar denominated debt, the Company may enter into cross currency swaps on a portion of its debt as
     a means of managing the U.S./Canadian dollar debt mix.

     The Company may partially mitigate its exposure to interest rate changes by holding a mix of both fixed and floating rate debt. Encana may enter into interest
     rate swap transactions from time to time as an additional means of managing the fixed/floating rate debt portfolio mix.

     Operational Risks
     Operational risks are defined as the risk of loss or lost opportunity resulting from the following:

     •	 reserve	replacement;

     •	 capital	activities;	and

     •	 operating	activities.

     The Company’s ability to operate, generate cash flows, complete projects, and value reserves is dependent on financial risks, including commodity prices
     mentioned above, continued market demand for its products and other risk factors outside of its control, which include: general business and market conditions;
     economic recessions and financial market turmoil; the ability to secure and maintain cost effective financing for its commitments; environmental and regulatory
     matters; unexpected cost increases; royalties; taxes; the availability of drilling and other equipment; the ability to access lands; weather; the availability of
     processing capacity; the availability and proximity of pipeline capacity; technology failures; accidents; the availability of skilled labour; and reservoir quality.




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If Encana fails to acquire or find additional natural gas reserves, its reserves and production will decline materially from their current levels and, therefore,
its cash flows are highly dependent upon successfully exploiting current reserves and acquiring, discovering or developing additional reserves.

To mitigate these risks, as part of the capital approval process, the Company’s projects are evaluated on a fully risked basis, including geological risk and
engineering risk. In addition, the asset teams undertake a thorough review of previous capital programs to identify key learnings, which often include operational
issues that positively and negatively impacted project results. Mitigation plans are developed for the operational issues that had a negative impact on results.
These mitigation plans are then incorporated into the current year plan for the project. On an annual basis, these results are analyzed for Encana’s capital
program with the results and identified learnings shared across the Company.

A peer review process is used to ensure that capital projects are appropriately risked and that knowledge is shared across the Company. Peer reviews are
undertaken primarily for exploration projects and early stage resource plays, although they may occur for any type of project.

When making operating and investing decisions, Encana’s business model allows flexibility in capital allocation to optimize investments focused on project
returns, long-term value creation, and risk mitigation. Encana also mitigates operational risks through a number of other policies, systems and processes as
well as by maintaining a comprehensive insurance program.

Safety, Environmental and Regulatory Risks
The Company is committed to safety in its operations and has high regard for the environment and stakeholders, including regulators. The Company’s business
is subject to all of the operating risks normally associated with the exploration for, development of and production of natural gas and liquids and the operation
of midstream facilities. When assessing the materiality of environmental risk factors, Encana takes into account a number of qualitative and quantitative factors,
including, but not limited to, financial, operational, reputational and regulatory aspects of the identified risk factor. These risks are managed by executing policies
and standards that are designed to comply with or exceed government regulations and industry standards. In addition, Encana maintains a system that identifies,
assesses and controls safety, security and environmental risk and requires regular reporting to Senior Management and the Board of Directors. The Corporate
Responsibility, Environment, Health & Safety Committee of Encana’s Board of Directors provides recommended environmental policies for approval by Encana’s
Board of Directors and oversees compliance with laws and regulations. Monitoring and reporting programs for environmental, health and safety performance in
day-to-day operations, as well as inspections and audits, are designed to provide assurance that environmental and regulatory standards are met. Contingency
plans are in place for a timely response to environmental events and remediation/reclamation strategies are utilized to restore the environment.

Encana’s operations are subject to regulation and intervention by governments that can affect or prohibit the drilling, completion, including hydraulic fracturing
and tie-in of wells, production, the construction or expansion of facilities and the operation and abandonment of fields. Changes in government regulation could
impact the Company’s existing and planned projects as well as impose a cost of compliance.

One of the processes Encana monitors relates to hydraulic fracturing. Hydraulic fracturing is used throughout the oil and gas industry where fracturing fluids
are	utilized	to	develop	the	reservoir.	This	process	has	been	used	in	the	oil	and	gas	industry	for	approximately	60	years.	Encana	uses	multiple	techniques	to	fully	
understand the effect of each hydraulic fracturing operation it conducts. In all Encana operations, rigorous water management and protection is an essential
part of this process. Hydraulic fracturing processes are strictly regulated by various state and provincial government agencies. Encana meets and, in many cases
exceeds, the requirements set out by the regulators. Encana is committed to working collaboratively with our industry peers, trade associations, fluid suppliers
and regulators to identify, develop and advance responsible hydraulic fracturing best practices. More information on hydraulic fracturing can be accessed on the
Company’s website at www.encana.com.

Climate Change
A number of federal, provincial and state governments have announced intentions to regulate greenhouse gases (“GHG”) and certain other air emissions.
While some jurisdictions have provided details on these regulations, it is anticipated that other jurisdictions will announce emission reduction plans in the
future. As these federal and regional programs are under development, Encana is unable to predict the total impact of the potential regulations upon its business.
Therefore, it is possible that the Company could face increases in operating and capital costs in order to comply with GHG emissions legislation. However, Encana
will continue to work with governments to develop an approach to deal with climate change issues that protects the industry’s competitiveness, limits the cost
and administrative burden of compliance and supports continued investment in the sector.

The Alberta Government has set targets for GHG emissions reductions. In March 2007, regulations were amended to require facilities that emit more than
100,000 tonnes of GHG emissions per year to reduce their emissions intensity by 12 percent from a regulated baseline starting July 1, 2007. To comply,
companies can make operating improvements, purchase carbon offsets or make a C$15 per tonne contribution to an Alberta Climate Change and Emissions
Management Fund. In Alberta, Encana has one facility covered under the emissions regulations. The forecast cost of carbon associated with the Alberta
regulations is not material to Encana at this time and is being actively managed.




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     In	British	Columbia,	effective	July	1,	2008,	a	‘revenue	neutral	carbon	tax’	was	applied	to	virtually	all	fossil	fuels,	including	diesel,	natural	gas,	coal,	propane,	and	
     home heating fuel. The tax applies to combustion emissions and to the purchase or use of fossil fuels within the province. The rate started at C$10 per tonne of
     carbon equivalent emissions, is currently C$20 per tonne and rises to C$30 per tonne by 2012. The forecast cost of carbon associated with the British Columbia
     regulations is not material to Encana at this time and is being actively managed.

     The American Clean Energy and Security Act (“ACESA”) was passed by the U.S. House of Representatives in June of 2009 but failed to gain sufficient support in
     the U.S. Senate in 2010. The ACESA proposed climate change legislation which would have established a GHG cap-and-trade system and provided incentives for
     the development of renewable energy. Subsequently, the current U.S. Administration has directed the U.S. Environmental Protection Agency (“EPA”) to exercise
     new authority under the Clean Air Act to regulate GHG emissions. Under the Clean Air Act, the EPA is required to set industry-specific standards for new and
     existing sources that emit GHGs above a certain threshold. The EPA has announced its intention to develop such standards for power plants and refineries in
     2011 but has made no significant announcements pertaining to natural gas exploration and production. Encana will continue to monitor these developments
     closely during 2011.

     Encana intends to continue its activity to reduce its emissions intensity and improve its energy efficiency. The Company’s efforts with respect to emissions
     management are founded on the following key elements:

     •	 significant	production	weighting	in	natural	gas;

     •	 focus	on	energy	efficiency	and	the	development	of	technology	to	reduce	GHG	emissions;	and

     •	 involvement	in	the	creation	of	industry	best	practices.

     Encana’s strategy for addressing the implications of emerging carbon regulations is proactive and is composed of three principal elements:

     •	 Manage Existing Costs
        When regulations are implemented, a cost is placed on Encana’s emissions (or a portion thereof) and while these are not material at this stage, they are
        being actively managed to ensure compliance. Factors such as effective emissions tracking and attention to fuel consumption help to support and drive the
        Company’s focus on cost reduction.

     •	 Respond to Price Signals
        As regulatory regimes for GHGs develop in the jurisdictions where Encana works, inevitably price signals begin to emerge. The Company has initiated an
        Environmental Efficiency Initiative in an effort to improve the energy efficiency of its operations. The price of potential carbon reductions plays a role in the
        economics of the projects that are implemented. In response to the anticipated price of carbon, Encana is also attempting, where appropriate, to realize
        the associated value of its reduction projects.

     •	 Anticipate Future Carbon Constrained Scenarios
        Encana continues to work with governments, academics and industry leaders to develop and respond to emerging GHG regulations. By continuing to
        stay engaged in the debate on the most appropriate means to regulate these emissions, the Company gains useful knowledge that allows it to explore
        different strategies for managing its emissions and costs. These scenarios influence Encana’s long-range planning and its analyses on the implications
        of regulatory trends.

     Encana monitors developments in emerging climate change policy and legislation, and considers the associated costs of carbon in its strategic planning.
     Management and the Board review the impact of a variety of carbon constrained scenarios on its strategy, with a current price range from approximately
     $10 to $50 per tonne of emissions applied to a range of emissions coverage levels. Encana also examines the impact of carbon regulation on its major projects.
     Although uncertainty remains regarding potential future emissions regulation, Encana’s plan is to continue to assess and evaluate the cost of carbon relative to
     its investments across a range of scenarios.

     Encana recognizes that there is a cost associated with carbon emissions. Encana is confident that GHG regulations and the cost of carbon at various price levels
     have been adequately considered as part of its business planning and scenarios analyses. Encana believes that the resource play strategy is an effective way to
     develop the resource, generate shareholder returns and coordinate overall environmental objectives with respect to carbon, air emissions, water and land. Encana
     is committed to transparency with its stakeholders and will keep them apprised of how these issues affect operations. Additional detail on Encana’s GHG
     emissions is available in the Corporate Responsibility Report that is available on the Company’s website at www.encana.com.




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aCCOunting POliCiEs and EstimatEs

NEw ACCOUNtING StANDARDS ADOPtED
On January 1, 2010, Encana adopted the following Canadian Institute of Chartered Accountants (“CICA”) Handbook sections:

•	 “Business	Combinations”,	Section	1582,	which	replaces	the	previous	business	combinations	standard.	The	standard	requires	assets	and	liabilities	acquired	
   in a business combination, contingent consideration and certain acquired contingencies to be measured at their fair values as of the date of acquisition. In
   addition, acquisition-related and restructuring costs are to be recognized separately from the business combination and included in the statement of earnings.
   The adoption of this standard has had no material impact on the accounting treatment of business combinations entered into after January 1, 2010.

•	 “Consolidated	Financial	Statements”,	Section	1601,	which,	together	with	Section	1602	below,	replace	the	former	consolidated	financial	statements	standard.	
   Section	1601	establishes	the	requirements	for	the	preparation	of	consolidated	financial	statements.	The	adoption	of	this	standard	has	had	no	material	impact	
   on Encana’s Consolidated Financial Statements.

•	 “Non-controlling	Interests”,	Section	1602,	which	establishes	the	accounting	for	a	non-controlling	interest	in	a	subsidiary	in	the	consolidated	financial	
   statements subsequent to a business combination. The standard requires a non-controlling interest in a subsidiary to be classified as a separate component
   of equity. In addition, net earnings and components of other comprehensive income are attributed to both the parent and non-controlling interest. The adoption
   of this standard has had no material impact on Encana’s Consolidated Financial Statements.

The above CICA Handbook sections are converged with IFRS. Encana will be required to report its results in accordance with IFRS beginning in 2011.

INtERNAtIONAL FINANCIAL REPORtING StANDARDS
The Company is executing a changeover plan to complete the transition to IFRS for 2011 financial reporting, which includes the preparation of 2010 required
comparative information. Based on current International standards, Encana expects IFRS will not have a major impact on the Company’s operations, strategic
decisions, Cash Flow or capital expenditures. The adoption of the IFRS upstream accounting principles continues to be the Company’s most significant area
of impact, which is described further below. Encana is on schedule with its changeover plan.

Encana’s IFRS Changeover Plan
The key elements of the Company’s changeover plan include:

•	 determine	appropriate	changes	to	accounting	policies	and	required	amendments	to	financial	disclosures;

•	 identify	and	implement	changes	in	associated	processes	and	information	systems;

•	 comply	with	internal	control	requirements;

•	 communicate	collateral	impacts	to	internal	business	groups;	and

•	 educate	and	train	internal	and	external	stakeholders.

As of December 31, 2010, Encana continues to make significant progress on its changeover plan. The Company has analyzed accounting policy alternatives
and drafted its IFRS accounting policies. Process and system changes have been implemented for significant areas of impact, while adhering to internal control
requirements. Information system changes have been tested and implemented to capture the required 2010 IFRS comparative data. IFRS education and training
sessions have been held with internal stakeholders.

Encana has completed its January 1, 2010 IFRS opening balance sheet based on its draft accounting policies. In addition, the Company is analyzing the IFRS
adjustments up to December 31, 2010. Encana’s external auditors have carried out certain initial audit procedures on the IFRS opening balance sheet impacts
and have started reviewing the IFRS impacts up to September 30, 2010.

Encana continues to monitor new and amended accounting standards issued by the International Accounting Standards Board to determine the impact on the
Company’s results, if any.




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     Expected Accounting Policy Impacts
     Encana’s significant areas of impact remain unchanged and include property, plant and equipment (“PP&E”), asset retirement obligation (“ARO”), impairment
     testing, stock-based compensation and income taxes. The following discussion provides an overview of these areas, as well as the exemptions available under
     IFRS 1, First-time Adoption of International Financial Reporting Standards. In general, IFRS 1 requires first time adopters to retrospectively apply IFRS, although
     it does provide optional and mandatory exemptions to these requirements.

     The January 1, 2010 opening balance sheet expected impacts are discussed below and result from the Company’s draft policies based on International standards
     which are currently issued and are expected to be in place for Encana’s first annual reporting period of December 31, 2011. The IFRS opening balance sheet
     impacts have had no effect on the Company’s January 1, 2010 debt to capitalization ratio of 32 percent.

     A reconciliation of the Company’s 2010 Canadian GAAP financial statements to IFRS has not been finalized. Accordingly, the impact of adopting IFRS on the
     Company’s financial position and results of operations as at and for the year ended December 31, 2010 will be disclosed in April 2011.

     Property, Plant and Equipment
     Under Canadian GAAP, Encana follows the CICA’s guideline on full cost accounting in which all costs directly associated with the acquisition of, the exploration
     for, and the development of natural gas and crude oil reserves are capitalized on a country-by-country cost centre basis. Costs accumulated within each country
     cost centre are depleted using the unit-of-production method based on proved reserves determined using estimated future prices and costs. Upon transition to
     IFRS, Encana will be required to adopt new accounting policies for upstream activities, including pre-exploration costs, exploration and evaluation costs and
     development costs.

     Pre-exploration costs are those expenditures incurred prior to obtaining the legal right to explore and must be expensed under IFRS. Currently, Encana capitalizes
     and depletes pre-exploration costs within the country cost centre. In 2009, these costs were not material to Encana.

     Exploration and evaluation costs are those expenditures for an area or project for which technical feasibility and commercial viability have not yet been
     determined. Under IFRS, Encana will initially capitalize these costs as exploration and evaluation assets on the balance sheet. When the area or project is
     determined to be technically feasible and commercially viable, the costs will be transferred to PP&E. Unrecoverable exploration and evaluation costs associated
     with an area or project will be expensed.

     Development costs include those expenditures for areas or projects where technical feasibility and commercial viability have been determined. Under IFRS,
     Encana will continue to capitalize these costs within PP&E on the balance sheet. However, the costs will be depleted on a unit-of-production basis over an area
     level (unit of account) instead of the country cost centre level currently utilized under Canadian GAAP. Encana has drafted the areas and the inputs to be utilized
     in the unit-of-production depletion calculation.

     Under IFRS, upstream divestitures will generally result in a gain or loss recognized in net earnings. Under Canadian GAAP, proceeds from divestitures are normally
     deducted from the full cost pool without recognition of a gain or loss unless the deduction would result in a change to the depletion rate of 20 percent or greater,
     in which case a gain or loss is recorded.

     Encana will adopt the IFRS 1 exemption, which allows the Company to deem its January 1, 2010 IFRS upstream asset costs to be equal to its Canadian GAAP
     historical upstream net book value. On January 1, 2010, the IFRS exploration and evaluation assets will be approximately $1.9 billion, which is equal to the
     Canadian GAAP unproved properties balance. The IFRS development costs will be equal to the full cost pool balance. Encana allocated this upstream full cost
     pool over proved reserves to establish the area level depletion units.

     Asset Retirement Obligation
     Under Canadian GAAP, ARO is measured as the estimated fair value of the retirement and decommissioning expenditures expected to be incurred. Existing
     liabilities are not re-measured using current discount rates. Under IFRS, ARO is measured as the best estimate of the expenditure to be incurred and requires the
     use of current discount rates at each re-measurement date. Generally, the change in discount rates results in a balance being added to or deducted from PP&E.

     As a result of Encana’s use of the IFRS 1 upstream asset exemption, the Company is required to revalue its January 1, 2010 ARO balance recognizing the
     adjustment in retained earnings. Encana expects to recognize an increase in the obligation of less than $50 million with a corresponding reduction to retained
     earnings on the IFRS opening balance sheet.




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Impairment
Under Canadian GAAP, Encana is required to recognize an upstream impairment loss if the carrying amount exceeds the undiscounted cash flows from proved
reserves for a country cost centre. If an impairment loss is to be recognized, it is then measured at the amount the carrying value exceeds the sum of the fair
value of the proved and probable reserves and the costs of unproved properties. Impairments recognized under Canadian GAAP are not reversed.

Under IFRS, Encana is required to recognize and measure an upstream impairment loss if the carrying value exceeds the recoverable amount for a cash-
generating unit. Under IFRS, the recoverable amount is the higher of fair value less cost to sell and value in use. Impairment losses, other than goodwill, are reversed
under IFRS when there is an increase in the recoverable amount. Encana will group its upstream assets into cash-generating units based on the independence of
cash inflows from other assets or other groups of assets. Encana does not expect to recognize an asset impairment on the IFRS opening balance sheet.

Stock-Based Compensation
Share units issued under Encana’s stock-based compensation plans that are accounted for using the intrinsic value method under Canadian GAAP will be
required to be fair valued under IFRS. The intrinsic value of a share unit is the amount by which Encana’s stock price exceeds the exercise price of a share
unit. The fair value of a share unit is determined utilizing a model, such as the Black-Scholes-Merton model. Encana will use the IFRS 1 exemption under which
share units that were vested prior to January 1, 2010 are not required to be retrospectively restated.

Encana expects to recognize an increase in the stock-based compensation liability of less than $50 million with a corresponding reduction to retained earnings
on the IFRS opening balance sheet.

Income Taxes
In transitioning to IFRS, the Company’s deferred tax liability will be impacted by the tax effects resulting from the IFRS changes discussed in this section of the
MD&A. Encana expects to recognize a decrease in the deferred tax liability of less than $50 million with a corresponding increase to retained earnings on the
IFRS opening balance sheet.

Other IFRS 1 Considerations
As permitted by IFRS 1, Encana’s foreign currency translation adjustment, currently the only balance in Encana’s accumulated other comprehensive income, will
be deemed to be zero and the balance of $755 million will be reclassified to retained earnings on January 1, 2010. There is no impact to Encana’s shareholders’
equity as a result of this reclassification. Retrospective restatement of foreign currency translation adjustments under IFRS principles will not be performed.

Business combinations and joint ventures entered into prior to January 1, 2010 will not be retrospectively restated using IFRS principles.

With respect to employee benefit plans, cumulative unamortized actuarial gains and losses will be charged to retained earnings on January 1, 2010. As such,
they will not be retrospectively restated using IFRS principles. Encana expects to recognize an increase in the pension liability of less than $100 million with
a corresponding reduction to retained earnings on the IFRS opening balance sheet.

CRItICAL ACCOUNtING POLICIES AND EStIMAtES
Management is required to make judgments, assumptions and estimates in the application of generally accepted accounting principles that have a significant
impact on the financial results of the Company. A summary of Encana’s significant accounting policies can be found in Note 1 to the Consolidated Financial
Statements. The following discussion outlines the accounting policies and practices involving the use of estimates that are critical to determining Encana’s
financial results.

Full Cost Accounting and Oil and Gas Reserves
As previously described, Encana follows full cost accounting for oil and gas activities. Reserves estimates can have a significant impact on earnings, as they are
a key input to the Company’s DD&A calculations and impairment tests. A downward revision in reserves estimates could result in a higher DD&A charge against
net earnings. An impairment of upstream assets is recognized when the net capitalized costs exceed the undiscounted cash flows from proved reserves for a
country cost centre. If an impairment is to be recognized, it is then measured at the amount the carrying value exceeds the sum of the fair value of the proved
and probable reserves and the costs of unproved properties. A downward revision in reserves estimates could result in the recognition of an impairment charged
against retained earnings. As at December 31, 2010, Encana has determined that no write-down to its upstream assets is required under Canadian GAAP.

All of Encana’s oil and gas reserves and resources are evaluated and reported on by independent qualified reserves evaluators. The estimation of reserves is a
subjective process. Forecasts are based on engineering data, projected future rates of production, estimated commodity price forecasts and the timing of future
expenditures, all of which are subject to numerous uncertainties and various interpretations. Reserves estimates can be revised upward or downward based on
the results of future drilling, testing, production levels and economics of recovery based on cash flow forecasts. Contingent resources are not classified as
reserves due to the absence of a commercial development plan that includes a firm intent to develop within a reasonable time frame.




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     Asset Retirement Obligations
     Asset retirement obligations are legal obligations associated with the requirement to retire tangible long-lived assets such as producing well sites, offshore
     production platforms and natural gas processing plants. The fair value of estimated asset retirement obligations is recognized in the Consolidated Balance Sheet
     when incurred and a reasonable estimate of fair value can be made. The asset retirement cost is capitalized as part of the cost of the related long-lived asset.
     Changes in the estimated obligation resulting from revisions to estimated timing or amount of cash flows are recognized as a change in the asset retirement
     obligation and the related asset retirement cost. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of
     asset retirement obligation in the Consolidated Statement of Earnings.

     The asset retirement obligation is estimated by discounting the expected future cash flows of the settlement. The discounted cash flows are based on estimates
     of reserve lives, retirement costs, discount rate and future inflation rate. These estimates will impact earnings through accretion on the asset retirement liability
     in addition to the depletion of the asset retirement cost included in PP&E. Actual expenditures incurred are charged against the accumulated obligation.

     Goodwill
     Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is assessed by Encana for impairment annually. To assess impairment,
     the fair value of each reporting unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book
     value, then a second test is performed to determine the amount of the impairment. The amount of the impairment is determined by deducting the fair value of the
     reporting unit’s assets and liabilities from the fair value of the reporting unit to determine the implied fair value of goodwill and comparing that amount to the
     book value of the reporting unit’s goodwill. Any excess of the book value of goodwill over the implied fair value of goodwill is the impairment amount.

     The fair value used in the impairment test is based on estimates of discounted future cash flows which involves assumptions on commodity prices, natural gas
     and liquids reserves, future expenses and discount rates. Encana has assessed its goodwill for impairment as at December 31, 2010 and has determined that
     no write-down is required.

     Income Taxes
     Encana follows the liability method of accounting for income taxes. Under this method, future income taxes are estimated and recorded for the effect of any
     difference between the accounting and income tax basis of an asset or liability, using the substantively enacted income tax rates. Accumulated future income
     tax balances are adjusted to reflect changes in income tax rates that are substantively enacted with the adjustment being recognized in net earnings in the period
     that the change occurs.

     Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiaries operate are subject to change. As such,
     income taxes are subject to measurement uncertainty and the interpretations can impact net earnings through the income tax expense arising from the changes
     in future income tax assets and liabilities.

     Derivative Financial Instruments
     As described in the Risk Management section of this MD&A, derivative financial instruments are used by Encana to manage its exposure to market risks
     relating to commodity prices, foreign currency exchange rates and interest rates. The Company’s policy is to not use derivative financial instruments for
     speculative purposes.

     Derivative financial instruments that do not qualify, or are not designated, as hedges for accounting are recorded at fair value. Instruments are recorded in
     the Consolidated Balance Sheet as either an asset or liability with changes in fair value recognized in net earnings. Realized gains or losses are recognized in
     revenues as the contracts are settled. Unrealized gains and losses are recognized in revenue at the end of each respective reporting period based on the change
     in fair value. The estimate of fair value of all derivative instruments is based on quoted market prices or, in their absence, third-party market indications and
     forecasts. The estimated fair value of financial assets and liabilities is subject to measurement uncertainty.

     For	2008	through	to	2010,	the	Company	elected	not	to	designate	any	of	its	derivative	financial	instruments	as	hedges	for	accounting.	As	a	result,	the	changes	
     in fair value of the derivative instruments were recorded in Net Earnings.




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nOn-gaaP mEasurEs
This MD&A contains certain non-GAAP measures commonly used in the oil and gas industry and by Encana to provide shareholders and potential investors
with additional information regarding the Company’s liquidity and ability to generate funds to finance operations.

Cash Flow
Cash Flow is a non-GAAP measure defined as cash from operating activities excluding net change in other assets and liabilities, net change in non-cash working
capital from continuing operations and net change in non-cash working capital from discontinued operations. Cash Flow is commonly used in the oil and gas
industry and by Encana to assist Management and investors in measuring the Company’s ability to finance capital programs and meet financial obligations.

Operating Earnings
Operating Earnings is a non-GAAP measure that adjusts Net Earnings by non-operating items that Management believes reduces the comparability of the
Company’s underlying financial performance between periods. Operating Earnings is commonly used in the oil and gas industry and by Encana to provide
investors with information that is more comparable between periods.

Operating Earnings is defined as Net Earnings excluding the after-tax gains/losses on discontinuance, after-tax effect of unrealized hedging gains/losses on
derivative instruments, after-tax gains/losses on translation of U.S. dollar denominated debt issued from Canada and the partnership contribution receivable,
after-tax foreign exchange gains/losses on settlement of intercompany transactions, future income tax on foreign exchange recognized for tax purposes only
related to U.S. dollar intercompany debt and the effect of changes in statutory income tax rates.

Capitalization and Debt to Capitalization
Capitalization is a non-GAAP measure defined as long-term debt including current portion plus shareholders’ equity. Debt to Capitalization is a non-GAAP
measure of the Company’s overall financial strength used by Management to steward the Company’s overall debt position.

Adjusted EBITDA and Debt to Adjusted EBITDA
Trailing 12-month Adjusted EBITDA is a non-GAAP measure defined as Net Earnings from Continuing Operations before gains or losses on divestitures, income
taxes, foreign exchange gains or losses, interest net, accretion of asset retirement obligation and DD&A. Debt to Adjusted EBITDA is also used by Management
as a measure of the Company’s overall financial strength to steward the Company’s overall debt position.

ADDItIONAL RECONCILIAtIONS OF NON-GAAP MEASURES
Reconciliation of Consolidated Cash Flow to Pro Forma Cash Flow
                                                                                                                    Three months ended
                                                                                                                          December 31                 Year Ended December 31

($ millions, except per share amounts)                                                                                             2009	        	     2009	         	               2008
Cash	Flow	                   	                                                                                               $	 603	            $	 6,779	           $	 9,386
Less: Cenovus Carve-out (1)	 	                                                                                               	   (15)	          	 2,232	            	 3,088
Add/(Deduct)	Pro	Forma	adjustments	                                                                                          	 312	             	    474	           	     56
Pro	Forma	Cash	Flow	               	                                                                                         $	 930	            $		 5,021	          $	 6,354
Per share amounts
		 Consolidated	Cash	Flow		–	Basic	                                                                                          $		   0.80	        $		   9.03	         $		 12.51
		 	                       –	Diluted		                                                                                       $		   0.80	        $		   9.02	         $	 12.48
		 Pro	Forma	Cash	Flow		 –	Basic	                                                                                            $		   1.24	        $		   6.69	         $		 8.47
	 	                        –	Diluted	                                                                                        $		   1.24	        $		   6.68	         $		 8.45
(1) Cenovus Energy was spun-off on November 30, 2009. Consolidated results prior to the spin-off include Cenovus.




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     Reconciliation of Consolidated Operating Earnings to Pro Forma Operating Earnings
                                                                                                                         Three months ended
                                                                                                                               December 31            Year Ended December 31

     ($ millions, except per share amounts)                                                                                             2009	   	     2009	         	     2008
     Operating	Earnings	          	                                                                                               $	 855	       $	 3,495	           $	 4,405
     Less: Cenovus Carve-out (1)	 	                                                                                               	   64	       	 1,224	            	 1,629
     Add/(Deduct)	Pro	Forma	adjustments	                                                                                          	 (418)	      	   (504)	          	   (171)
     Pro	Forma	Operating	Earnings		                                                                                               $		 373	      $	 1,767	           $		 2,605
     Per share amounts
     		 Consolidated	Operating	Earnings	–	Diluted	                                                                                $		 1.14	     $		 4.65	           $		 5.86
         Pro Forma Operating Earnings – Diluted                                                                                   $ 0.50        $ 2.35              $ 3.47
     (1) Cenovus Energy was spun-off on November 30, 2009. Consolidated results prior to the spin-off include Cenovus.

     Reconciliation of Consolidated Net Earnings to Pro Forma Net Earnings
                                                                                                                         Three months ended
                                                                                                                               December 31            Year Ended December 31

     ($ millions, except per share amounts)                                                                                             2009	   	     2009	         	     2008
     Net	Earnings	                	                                                                                               $		 636	      $	 1,862	           $		 5,944
     Less: Cenovus Carve-out (1)	 	                                                                                               	    (15)	    	    609	           	 2,368
     Add/(Deduct)	Pro	Forma	adjustments	                                                                                          	 (418)	      	   (504)	          	    (171)
     Pro Forma Net Earnings                                                                                                       $      233    $      749          $ 3,405
     Per share amounts
     	 Consolidated	Net	Earnings		–	Basic	                                                                                        $	    0.85	   $		   2.48	         $		   7.92
     		 	                         –	Diluted		                                                                                     $		   0.85	   $		   2.48	         $		   7.91
         Pro Forma Net Earnings – Basic                                                                                           $     0.31    $     1.00          $     4.54
                                  – Diluted                                                                                       $     0.31    $     1.00          $     4.53
     (1) Cenovus Energy was spun-off on November 30, 2009. Consolidated results prior to the spin-off include Cenovus.


     advisOry

     FORwARD-LOOkING StAtEMENtS
     In the interest of providing Encana shareholders and potential investors with information regarding the Company and its subsidiaries, including Management’s
     assessment of Encana’s and its subsidiaries’ future plans and operations, certain statements contained in this document constitute forward-looking statements
     or information (collectively referred to herein as “forward-looking statements”) within the meaning of the “safe harbour” provisions of applicable securities
     legislation. Forward-looking statements are typically identified by words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “forecast”, “target”, “project”
     or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements in this document include, but are not limited to,
     statements with respect to: ability to meet 2011 strategy to balance near term market uncertainty with capital investment for long-term growth; projections
     contained in the 2011 Corporate Guidance (including estimates of cash flow per share, upstream operating cash flow, natural gas and NGLs production, growth
     per share, capital investment, net divestitures, and operating costs); doubling production per share over five years from 2009 levels; potential completion of a
     joint venture transaction with PetroChina; projections relating to the adequacy of the Company’s provision for taxes; projections with respect to natural gas
     production from resource plays; the flexibility of capital spending plans and the source of funding therefore; the effect of the Company’s risk management
     program, including the impact of derivative financial instruments; the impact of the changes and proposed changes in laws and regulations, including greenhouse
     gas, carbon and climate change initiatives on the Company’s operations and operating costs; projections that the Company’s Bankers’ Acceptances and
     Commercial Paper Program will continue to be fully supported by committed credit facilities and term loan facilities and the ability of the Company to maintain its
     investment grade credit ratings; the Company’s continued compliance with financial covenants under its credit facilities; the Company’s ability to pay its creditors,
     suppliers, commitments and fund its 2011 capital program and pay dividends to shareholders; the effect of the Company’s risk mitigation policies, systems,
     processes and insurance program; the Company’s expectations for future Debt to Capitalization and Debt to Adjusted EBITDA ratios; the expected impact and
     timing of various accounting pronouncements, rule changes and standards, including IFRS, on the Company and its Consolidated Financial Statements; reserves
     estimates, including reserves estimates under different price cases; target to become highest-growth, lowest-cost natural gas producer in North America;
     estimates of economic contingent resources, reserves life index, drilling locations and years of drilling inventory; projection to lower supply cost in the next three
     to five years; success of resource play hub model and other improvements to reduce cost and improve efficiencies; projected Haynesville production by 2014;
     ability to make share purchases under the Company’s Normal Course Issuer Bid; increase in natural gas demand from the transportation and power generation
     industries, including Company’s estimates for natural gas demand and use by 2025; and projections that natural gas represents an abundant, secure, long-term


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supply of energy to meet North American needs. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance
that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known
and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-
looking statements will not occur, which may cause the Company’s actual performance and financial results in future periods to differ materially from any estimates
or projections of future performance or results expressed or implied by such forward-looking statements. These assumptions, risks and uncertainties include,
among other things: volatility of and assumptions regarding commodity prices; assumptions based upon Encana’s current guidance; the risk that the Company may
not conclude potential joint venture arrangements with PetroChina or others as a result of various conditions not being met and raise third party capital investments;
fluctuations in currency and interest rates; product supply and demand; market competition; risks inherent in the Company’s and its subsidiaries’ marketing
operations, including credit risks; imprecision of reserves and resources estimates and estimates of recoverable quantities of natural gas and liquids from resource
plays and other sources not currently classified as proved, probable or possible reserves or economic contingent resources; the Company’s and its subsidiaries’
ability to replace and expand reserves; marketing margins; potential disruption or unexpected technical difficulties in developing new facilities; unexpected cost
increases or technical difficulties in constructing or modifying processing facilities; risks associated with technology; the Company’s ability to generate sufficient
cash flow from operations to meet its current and future obligations; the Company’s ability to access external sources of debt and equity capital; the timing and the
costs of well and pipeline construction; the Company’s and its subsidiaries’ ability to secure adequate product transportation; changes in royalty, tax, environmental,
greenhouse gas, carbon, accounting and other laws or regulations or the interpretations of such laws or regulations; political and economic conditions in the
countries in which the Company and its subsidiaries operate; terrorist threats; risks associated with existing and potential future lawsuits and regulatory actions
made against the Company and its subsidiaries; and other risks and uncertainties described from time to time in the reports and filings made with securities
regulatory authorities by Encana. Although Encana believes that the expectations represented by such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list of important factors is not exhaustive. Forward-looking
statements with respect to anticipated production, reserves and production growth, including statements of doubling production per share over five years, are based
upon	numerous	facts	and	assumptions	including	a	projected	capital	program	averaging	approximately	$6	billion	per	year	that	underlies	the	long	range	plan	of	
Encana which is subject to review annually and to such revision for factors including the outlook for natural gas commodity prices and the expectations for capital
investment by the Company, achieving an average drilling rate of approximately 2,500 net wells per year for 2011 to 2014, Encana’s current net drilling location
inventory, natural gas price expectations over the next few years, production expectations made in light of advancements in horizontal drilling, multi-stage fracture
stimulation and multi-well pad drilling, the current and expected productive characteristics of various existing resource plays, Encana’s estimates of reserves and
economic contingent resources, expectations for rates of return which may be available at various prices for natural gas and current and expected cost trends.
Furthermore, the forward-looking statements contained in this document are made as of the date of this document, and except as required by law, Encana does not
undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or
otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
Forward-looking information respecting anticipated 2011 Cash Flow, operating cash flow and pre-tax cash flow for Encana is based upon achieving average
production of oil and gas for 2011 of between 3.475 to 3.525 billion cubic feet equivalent (“Bcfe”) per day (“Bcfe/d”), commodity prices for natural gas of NYMEX
$4.50/Mcf	to	$5.00/Mcf,	crude	oil	(WTI)	$85.00/bbl	to	$95.00/bbl,	U.S./Canadian	dollar	foreign	exchange	rate	of	$0.95	to	$1.05	and	a	weighted	average	
number	of	outstanding	shares	for	Encana	of	approximately	736	million.	Assumptions	relating	to	forward-looking	statements	generally	include	Encana’s	current	
expectations and projections made by the Company in light of, and generally consistent with, its historical experience and its perception of historical trends,
as well as expectations regarding rates of advancement and innovation, generally consistent with and informed by its past experience, all of which are subject
to the risk factors identified elsewhere in this document.
Encana is required to disclose events and circumstances that occurred during the period to which this MD&A relates that are reasonably likely to cause actual
results to differ materially from material forward-looking statements for a period that is not yet complete that Encana has previously disclosed to the public and
the expected differences thereto. Such disclosure can be found in Encana’s news release dated February 10, 2011, which is available on Encana’s website at
www.encana.com and on SEDAR at www.sedar.com.

RESERVES DAtA AND OthER OIL AND GAS INFORMAtION
Reserves Data and Other
NI 51-101 of the CSA imposes oil and gas disclosure standards for Canadian public companies engaged in oil and gas activities. In previous years, Encana relied
upon an exemption from Canadian securities regulatory authorities to permit it to provide disclosure relating to reserves and other oil and gas information in
accordance with U.S. disclosure requirements. As a result of the expiry of that exemption, Encana is providing disclosure which complies with the annual
disclosure requirements of NI 51-101 in its AIF. The Canadian protocol disclosure is contained in Appendix A and under “Narrative Description of the Business”
in the AIF. Encana has obtained an exemption dated January 4, 2011 from certain requirements of NI 51-101 to permit it to provide certain disclosure prepared
in accordance with U.S. disclosure requirements, in addition to the Canadian protocol disclosure. That disclosure is primarily set forth in Appendix D of the AIF.
A description of the primary differences between the disclosure requirements under the Canadian standards and the disclosure requirements under the U.S.
standards is set forth under the heading “Reserve Quantities and Other Oil and Gas Information” in the AIF.
For information relating to the definition and further description of economic contingent resources, as referred to in this Annual Report, please see the “Advisory
Regarding Reserves and Other Resources Information” section of Encana’s news release dated February 10, 2011.

                                                                                                                                 Annual Report 2010 / Encana Corporation             73
M d& a
            p repa red i n us$




     Natural Gas, Crude Oil and NGLs Conversions
     In this document, certain crude oil and NGLs volumes have been converted to cubic feet equivalent (cfe) on the basis of one barrel (bbl) to six thousand cubic
     feet (Mcf). Cfe may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method
     primarily applicable at the burner tip and does not represent value equivalency at the wellhead.

     Resource Play
     Resource play is a term used by Encana to describe an accumulation of hydrocarbons known to exist over a large areal expanse and/or thick vertical section,
     which when compared to a conventional play typically has a lower geological and/or commercial development risk and lower average decline rate.

     CURRENCy, PRO FORMA INFORMAtION, NON-GAAP MEASURES AND REFERENCES tO ENCANA
     All information included in this document and the Consolidated Financial Statements and comparative information is shown on a U.S. dollar, after royalties
     basis unless otherwise noted.

     Pro Forma Information
     On November 30, 2009, Encana completed a major corporate reorganization – a Split Transaction that resulted in the Company’s transition into a pure-play
     natural gas company and the spin off of its Integrated Oil and Canadian Plains assets into Cenovus Energy Inc., an independent, publicly-traded energy company.
     Encana’s consolidated results include the financial and operating performance of the Cenovus assets for the first 11 months of 2009. To give investors a clear
     understanding of post-split Encana, 2009 financial and operating results in this document highlight Encana’s results on a pro forma basis, which reflect the
     Company	as	if	the	Split	Transaction	had	been	completed	for	all	of	2009	and	2008.	In	this	pro	forma	presentation,	the	results	associated	with	the	assets	and	
     operations transferred to Cenovus are eliminated from Encana’s consolidated results, and adjustments specific to the Split Transaction are reflected.

     Non-GAAP Measures
     Certain measures in this document do not have any standardized meaning as prescribed by Canadian GAAP such as Cash Flow, Cash Flow per share – diluted,
     Operating Earnings, Operating Earnings per share – diluted, Adjusted EBITDA, Debt and Capitalization and, therefore, are considered non-GAAP measures.
     Therefore, these measures may not be comparable to similar measures presented by other issuers. These measures have been described and presented in this
     document in order to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds
     to finance its operations. Management’s use of these measures has been disclosed further in this document as these measures are discussed and presented.

     References to Encana
     For convenience, references in this document to “Encana”, the “Company”, “we”, “us”, “our” and “its” may, where applicable, refer only to or include any relevant
     direct and indirect subsidiary corporations and partnerships (“Subsidiaries”) of Encana Corporation, and the assets, activities and initiatives of such Subsidiaries.

     ADDItIONAL INFORMAtION
     Further information regarding Encana Corporation, including its Annual Information Form, can be accessed under the Company’s public filings found at
     www.sedar.com and on the Company’s website at www.encana.com.




74   Encana Corporation / Annual Report 2010
management




                                                                                                                                                                  M a na GeM enT
reporT




                                                                                                                                                                  rep orT
Management’s Responsibility for Consolidated Financial Statements
The accompanying Consolidated Financial Statements of Encana Corporation (the “Company”) are the responsibility of Management. The Consolidated
Financial Statements have been prepared by Management in United States dollars in accordance with Canadian generally accepted accounting principles
and include certain estimates that reflect Management’s best judgments. Financial information contained throughout the annual report is consistent with
these financial statements.

The Company’s Board of Directors has approved the information contained in the Consolidated Financial Statements. The Board of Directors fulfils its
responsibility regarding the financial statements mainly through its Audit Committee, which has a written mandate that complies with the current requirements
of Canadian securities legislation and the United States Sarbanes-Oxley Act of 2002 and voluntarily complies, in principle, with the Audit Committee guidelines
of the New York Stock Exchange. The Audit Committee meets at least on a quarterly basis.

Management’s Assessment of Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. The internal control
system was designed to provide reasonable assurance to the Company’s Management regarding the preparation and presentation of the Consolidated
Financial Statements.

Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

Management has assessed the design and effectiveness of the Company’s internal control over financial reporting as at December 31, 2010. In making its
assessment, Management has used the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Based on our evaluation, Management has concluded
that the Company’s internal control over financial reporting was effectively designed and operating effectively as at that date.

PricewaterhouseCoopers LLP, an independent firm of chartered accountants, was appointed by a vote of shareholders at the Company’s last annual meeting
to audit and provide independent opinions on both the Consolidated Financial Statements and the Company’s internal control over financial reporting as at
December 31, 2010, as stated in their Auditor’s Report. PricewaterhouseCoopers LLP has provided such opinions.




Randall K. Eresman                                                  Sherri A. Brillon
President & Chief Executive Officer                                 Executive Vice-President & Chief Financial Officer

February 16, 2011




                                                                                                                             Annual Report 2010 / Encana Corporation               75
                    auDitor’s
     a udi Tor’ s




                    reporT
     rep orT




      To the Shareholders of Encana Corporation
      We	have	completed	integrated	audits	of	Encana	Corporation’s	2010,	2009	and	2008	consolidated	financial	statements	and	its	internal	control	over	financial	
      reporting as at December 31, 2010. Our opinions, based on our audits, are presented below.

      REPORt ON thE CONSOLIDAtED FINANCIAL StAtEMENtS
      We have audited the accompanying consolidated financial statements of Encana Corporation, which comprise the consolidated balance sheets as at December 31,
      2010 and 2009 and the consolidated statements of earnings, comprehensive income, shareholders’ equity and cash flows for each of the three years in the
      period ended December 31, 2010, and the related notes including a summary of significant accounting policies.

      Management’s responsibility for the consolidated financial statements
      Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted
      accounting principles and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that
      are free from material misstatement, whether due to fraud or error.

      Auditor’s responsibility
      Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian
      generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
      and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Canadian generally
      accepted auditing standards require that we comply with ethical requirements.

      An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements.
      The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial
      statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and
      fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes
      evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as
      evaluating the overall presentation of the consolidated financial statements.

      We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated
      financial statements.

      Opinion
      In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Encana Corporation as at December 31, 2010
      and 2009 and the results of its operations and cash flows for each of the three years in the period ended December 31, 2010 in accordance with Canadian
      generally accepted accounting principles.

      REPORt ON INtERNAL CONtROL OVER FINANCIAL REPORtING
      We have also audited Encana Corporation’s internal control over financial reporting as at December 31, 2010, based on criteria established in Internal Control –
      Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

      Management’s responsibility for internal control over financial reporting
      Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
      financial reporting included in the accompanying Management’s Assessment of Internal Control over Financial Reporting.




76    Encana Corporation / Annual Report 2010
                                                                                                                                                                    a udi Tor’ s
                                                                                                                                                                    rep orT
Auditor’s responsibility
Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.

An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such
other procedures as we consider necessary in the circumstances.

We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting.

Definition of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with Canadian generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.

Opinion
In our opinion, Encana Corporation maintained, in all material respects, effective internal control over financial reporting as at December 31, 2010 based
on criteria established in Internal Control – Integrated Framework, issued by COSO.




PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Alberta, Canada

February 16, 2011




                                                                                                                                Annual Report 2010 / Encana Corporation            77
     p repa red i n us$
                          consolidaTed statement
     c onsoli daTed

     sTaTeM enTs
     Fi na nc i a l




                          oF earnings
     For the years ended December 31 (US$ millions, except per share amounts)                   2010	    	    2009	     	     2008
     Revenues, Net of Royalties                                                  (Note 4)   $ 8,870      $ 11,114       $ 21,053

     Expenses                                                                    (Note 4)
        Production and mineral taxes                                                              217	   	      171	    	      478
        Transportation                                                                            859	   	    1,280	    	    1,704
        Operating                                                                               1,061	   	    1,627	    	    1,983
        Purchased product                                                                         739	   	    1,460	    	    2,426
        Depreciation, depletion and amortization                                                3,242         3,704          4,035
        Administrative                                                                            359           477            447
        Interest, net                                                            (Note 7)         501           405            402
        Accretion of asset retirement obligation                                (Note 13)          46             71            77
        Foreign exchange (gain) loss, net                                        (Note 8)        (216)           (22)          423
        (Gain) loss on divestitures                                              (Note 6)           2              2          (141)
                                                                                                6,810	   	    9,175	    	 11,834
     Net Earnings Before Income Tax                                                             2,060         1,939          9,219
        Income tax expense                                                       (Note 9)         561           109          2,720
     Net Earnings From Continuing Operations                                                    1,499	   	    1,830	    	    6,499
     Net Earnings (Loss) From Discontinued Operations                            (Note 5)           –            32           (555)
     Net Earnings                                                                           $ 1,499	     $	 1,862	      $	 5,944

     Net Earnings From Continuing Operations per Common Share                   (Note 15)
        Basic                                                                               $    2.03	   $	    2.44	    $	    8.66
        Diluted                                                                             $    2.03	   $	    2.44	    $	    8.64

     Net Earnings per Common Share                                              (Note 15)
        Basic                                                                               $    2.03	   $	    2.48	    $	    7.92
        Diluted                                                                             $    2.03	   $	    2.48	    $	    7.91




     consolidaTed statement
     oF comprehensive income
     For the years ended December 31 (US$ millions)                                             2010	    	    2009	     	     2008
     Net Earnings                                                                           $ 1,499	     $	 1,862	      $	 5,944
     Other Comprehensive Income, Net of Tax
        Foreign Currency Translation Adjustment                                                  296	    	    2,018	    	    (2,230)
     Comprehensive Income                                                                   $ 1,795	     $	 3,880	      $	 3,714

     See accompanying Notes to Consolidated Financial Statements




78   Encana Corporation / Annual Report 2010
consolidaTed




                                                                                                                                p repa red i n us$
                                                                                                                                c onsoli daTed

                                                                                                                                sTaTeM enTs
                                                                                                                                Fi na nc i a l
balance sheet
As at December 31 (US$ millions)                                                                        2010                   2009
Assets
Current Assets
   Cash and cash equivalents                                                                      $      629             $    4,275
   Accounts receivable and accrued revenues                                                            1,103	            	    1,180
   Risk management                                                                  (Note 17)            729	            	      328
   Income tax receivable                                                                                 390                      –
   Inventories                                                                                             3                     12
                                                                                                       2,854                5,795
Property, Plant and Equipment, net                                               (Notes 4, 10)        28,701	            	 26,173
Investments and Other Assets                                                        (Note 11)            235	            	    164
Risk Management                                                                     (Note 17)            505                   32
Goodwill                                                                              (Note 4)         1,725	            	 1,663
                                                                                      (Note 4)    $ 34,020	              $	 33,827
Liabilities and Shareholders’ Equity
Current Liabilities
   Accounts payable and accrued liabilities                                                       $    2,211             $    2,143
   Income tax payable                                                                                      –	            	    1,776
   Risk management                                                                  (Note 17)             65	            	      126
   Current portion of long-term debt                                                (Note 12)            500                    200
                                                                                                       2,776                  4,245
Long-Term Debt                                                                      (Note 12)          7,129	            	    7,568
Other Liabilities                                                                     (Note 4)         1,730	            	    1,185
Risk Management                                                                     (Note 17)              8                     42
Asset Retirement Obligation                                                         (Note 13)            820	            	      787
Future Income Taxes                                                                   (Note 9)         4,230	            	    3,386
                                                                                                      16,693                 17,213
Commitments and Contingencies                                                       (Note 19)

Shareholders’ Equity
   Share capital                                                                    (Note 15)          2,319	            	    2,360
   Paid in surplus                                                                  (Note 15)              –	            	        6
   Retained earnings                                                                                  13,957                 13,493
   Accumulated other comprehensive income                                                              1,051                    755
Total Shareholders’ Equity                                                                            17,327	            	 16,614
                                                                                                  $ 34,020	              $	 33,827

See accompanying Notes to Consolidated Financial Statements

Approved by the Board




David P. O’Brien                                              Jane L. Peverett
Director                                                      Director




                                                                                                 Annual Report 2010 / Encana Corporation             79
     p repa red i n us$
                          consolidaTed statement
     c onsoli daTed

     sTaTeM enTs
     Fi na nc i a l




                          oF shareholDers’ equity
     For the years ended December 31 (US$ millions)                                 2010	    	     2009	     	    2008
     Share Capital
     Balance, Beginning of Year                                                 $   2,360    $     4,557     $    4,479
     Common Shares Issued under Option Plans                        (Note 15)           5	   	         5	    	       80
     Common Shares Issued from PSU Trust                            (Note 15)           –             19              –
     Stock-Based Compensation                                       (Note 15)           2              1             11
     Common Shares Purchased                                        (Note 15)         (48)             –            (13)
     Common Shares Cancelled                                         (Note 3)           –	   	    (4,582)	   	        –
     New Encana Common Shares Issued                                 (Note 3)           –	   	     2,360	    	        –
     Encana Special Shares Issued                                    (Note 3)           –          2,222              –
     Encana Special Shares Cancelled                                 (Note 3)           –         (2,222)             –
     Balance, End of Year                                                       $   2,319	   $	 2,360	       $	 4,557
     Paid in Surplus
     Balance, Beginning of Year                                                 $       6	   $	        –	    $	      80
     Common Shares Issued from PSU Trust                            (Note 15)           –	   	         6	    	        –
     Stock-Based Compensation                                                           –              –              1
     Common Shares Purchased                                        (Note 15)          (6)             –              –
     Common Shares Distributed under Incentive Compensation Plans                       –	   	         –	    	      (81)
     Balance, End of Year                                                       $       –	   $	        6	    $	       –
     Retained Earnings
     Balance, Beginning of Year                                                 $ 13,493	    $	 17,584	      $	 13,082
     Net Earnings                                                                  1,499	    	 1,862	        	 5,944
     Dividends on Common Shares                                                     (590)        (1,051)        (1,199)
     Charges for Normal Course Issuer Bid                           (Note 15)       (445)             –           (243)
     Net Distribution to Cenovus Energy                              (Note 3)          –         (4,902)             –
     Balance, End of Year                                                       $ 13,957	    $	 13,493	      $	 17,584
     Accumulated Other Comprehensive Income
     Balance, Beginning of Year                                                 $    755	    $	   833	       $	 3,063
     Foreign Currency Translation Adjustment                                         296	    	 2,018	        	 (2,230)
     Transferred to Cenovus Energy                                   (Note 3)          –	    	 (2,096)	      	      –
     Balance, End of Year                                                       $   1,051	   $	     755	     $	    833
     Total Shareholders’ Equity                                                 $ 17,327	    $	 16,614	      $	 22,974

     See accompanying Notes to Consolidated Financial Statements




80   Encana Corporation / Annual Report 2010
consolidaTed statement




                                                                                                                                   p repa red i n us$
                                                                                                                                   c onsoli daTed

                                                                                                                                   sTaTeM enTs
                                                                                                                                   Fi na nc i a l
oF cash Flows
For the years ended December 31 (US$ millions)                                            2010	      	     2009	            	     2008
Operating Activities
   Net earnings from continuing operations                                           $ 1,499	        $	 1,830	              $	 6,499
   Depreciation, depletion and amortization                                             3,242            3,704                  4,035
   Future income taxes                                                    (Note 9)        774           (1,799)                 1,723
   Cash tax on sale of assets                                             (Note 9)          –                 –                     25
   Unrealized (gain) loss on risk management                             (Note 17)       (945)	      	 2,680	               	 (2,729)
   Unrealized foreign exchange (gain) loss                                               (278)            (231)                   417
   Accretion of asset retirement obligation                              (Note 13)         46                71                     77
   (Gain) loss on divestitures                                            (Note 6)          2                 2                  (141)
   Other                                                                                   99              373                     (79)
   Cash flow from discontinued operations                                                   –              149                   (441)
   Net change in other assets and liabilities                                             (84)               23                  (257)
   Net change in non-cash working capital from continuing operations     (Note 18)     (1,990)              (29)               (1,353)
   Net change in non-cash working capital from discontinued operations                      –            1,100                  1,210
    Cash From Operating Activities                                                       2,365	      	    7,873	            	    8,986
Investing Activities
   Capital expenditures                                                   (Note 4)       (4,773)	    	    (4,625)	          	    (6,823)
   Acquisitions                                                           (Note 6)         (733)	    	      (263)	          	    (1,174)
   Proceeds from divestitures                                             (Note 6)          883	     	     1,178	           	       904
   Cash tax on sale of assets                                             (Note 9)            –                 –                    (25)
   Cash transferred on Split Transaction                                  (Note 3)            –	     	    (3,996)	          	          –
   Proceeds from notes receivable from Cenovus                            (Note 3)            –            3,750                       –
   Net change in investments and other                                                      (80)             337                    311
   Net change in non-cash working capital from continuing operations     (Note 18)          (26)              (50)                    34
   Discontinued operations                                                                    –	     	    (1,137)	          	      (769)
    Cash (Used in) Investing Activities                                                  (4,729)	    	    (4,806)	          	    (7,542)
Financing Activities
   Net issuance (repayment) of revolving long-term debt                                      –	      	    (1,852)	          	        (53)
   Issuance of long-term debt                                                                –	      	       496	           	       723
   Issuance of Cenovus Notes                                              (Note 3)           –	      	     3,468	           	          –
   Repayment of long-term debt                                           (Note 12)        (200)	     	      (250)	          	      (664)
   Issuance of common shares                                             (Note 15)           5	      	        24	           	         80
   Purchase of common shares                                             (Note 15)        (499)	     	         –	           	      (326)
   Dividends on common shares                                                             (590)           (1,051)                (1,199)
    Cash From (Used in) Financing Activities                                             (1,284)	    	      835	            	    (1,439)

Foreign Exchange Gain (Loss) on Cash and Cash Equivalents
   Held in Foreign Currency                                                                   2               19                      (33)

Increase (Decrease) in Cash and Cash Equivalents                                         (3,646)	    	    3,921	            	       (28)
Cash and Cash Equivalents, Beginning of Year                                              4,275	     	      354	            	       382
Cash and Cash Equivalents, End of Year                                               $     629       $    4,275             $       354

Cash, End of Year                                                                    $     126	      $	     218	            $	       13
Cash Equivalents, End of Year                                                              503            4,057                     341
Cash and Cash Equivalents, End of Year                                               $     629       $    4,275             $       354

Supplementary Cash Flow Information                                      (Note 18)

See accompanying Notes to Consolidated Financial Statements



                                                                                                    Annual Report 2010 / Encana Corporation             81
                          noTes To consolidaTed
     p repa red i n us$
     c onsoli daTed

     sTaTeM enTs
     Fi na nc i a l
     noTes To




                          Financial statements
                          Prepared using Canadian Generally Accepted Accounting Principles
                          All amounts in US$ millions, unless otherwise indicated
                          For the year ended December 31, 2010



     1. summary oF signiFicant accounting policies

     In these Consolidated Financial Statements, unless otherwise indicated, all dollar amounts are expressed in United States (U.S.) dollars. Encana’s functional
     currency is Canadian dollars; Encana has adopted the U.S. dollar as its reporting currency since most of its revenue is closely tied to the U.S. dollar and to
     facilitate a more direct comparison to other North American oil and gas companies. All references to US$ or to $ are to United States dollars and references
     to C$ are to Canadian dollars.

     Encana’s continuing operations are in the business of the exploration for, the development of, and the production and marketing of natural gas, crude oil and
     natural gas liquids (“NGLs”).

     a) PrinCiPlEs OF COnsOlidatiOn
     The Consolidated Financial Statements include the accounts of Encana Corporation and its subsidiaries (“Encana” or the “Company”), and are presented in
     accordance with Canadian generally accepted accounting principles (“GAAP”). Information prepared in accordance with U.S. GAAP is included in Note 21.

     Investments in jointly controlled assets, partnerships and unincorporated joint ventures carry on Encana’s exploration, development and production and are
     accounted for using the proportionate consolidation method, whereby Encana’s proportionate share of revenues, expenses, assets and liabilities are included
     in the accounts.

     b) FOrEign CurrEnCy translatiOn
     The accounts of self-sustaining operations are translated using the current rate method, whereby assets and liabilities are translated at period end exchange
     rates, while revenues and expenses are translated using average rates over the period. Translation gains and losses relating to the self-sustaining operations
     are included in accumulated other comprehensive income (“AOCI”) as a separate component of shareholders’ equity. As at December 31, 2010, AOCI solely
     includes foreign currency translation adjustments.

     Monetary assets and liabilities of the Company that are denominated in foreign currencies are translated into its functional currency at the rates of exchange
     in effect at the period end date. Any gains or losses are recorded in the Consolidated Statement of Earnings.

     C) mEasurEmEnt unCErtainty
     The timely preparation of the Consolidated Financial Statements in conformity with Canadian GAAP requires that Management make estimates and assumptions
     and use judgment regarding the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated
     Financial Statements and the reported amounts of revenues and expenses during the period. Such estimates primarily relate to unsettled transactions and
     events as of the date of the Consolidated Financial Statements. Accordingly, actual results may differ from estimated amounts as future confirming events occur.

     Amounts recorded for depreciation, depletion and amortization, asset retirement costs and obligations, and amounts used for ceiling test and impairment
     calculations are based on estimates of natural gas, crude oil and NGL reserves and future costs required to develop those reserves. By their nature, these
     estimates of reserves, including the estimates of future prices, costs and the related future cash flows, are subject to measurement uncertainty. Accordingly,
     the impact in the Consolidated Financial Statements of future periods could be material.

     The estimated fair value of derivative instruments resulting in financial assets and liabilities, by their very nature, are subject to measurement uncertainty.

     Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiaries operate are subject to change. As such,
     income taxes are subject to measurement uncertainty.

     The amount of compensation expense accrued for long-term performance-based compensation arrangements is subject to Management’s best estimate of
     whether or not the performance criteria will be met and what the ultimate payout will be.

     The values of pension assets and obligations and the amount of pension costs charged to net earnings depend on certain actuarial and economic assumptions
     which, by their nature, are subject to measurement uncertainty.




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d) rEvEnuE rECOgnitiOn
Revenues associated with the sales of Encana’s natural gas, crude oil and NGLs are recognized when title passes from the Company to its customer. Realized
gains and losses from the Company’s natural gas and crude oil commodity price risk management activities are recorded in revenue when the contract is settled.

Market optimization revenues and purchased product are recorded on a gross basis when Encana takes title to product and has risks and rewards of ownership.
Purchases and sales of products that are entered into in contemplation of each other with the same counterparty are recorded on a net basis. Revenues
associated with the services provided where Encana acts as agent are recorded as the services are provided. Sales of electric power are recognized when
power is provided to the customer.

Unrealized gains and losses from the Company’s natural gas and crude oil commodity price risk management activities are recorded in revenue based on the
fair value of the contracts at the end of the respective periods.

E) PrOduCtiOn and minEral taXEs
Costs paid by Encana to non-mineral interest owners based on production of natural gas, crude oil and NGLs are recognized when the product is produced.

F) transPOrtatiOn COsts
Costs paid by Encana for the transportation of natural gas, crude oil and NGLs, including diluent, are recognized when the product is delivered and the
services provided.

g) EmPlOyEE bEnEFit Plans
Encana accrues for its obligations under its employee benefit plans and the related costs, net of plan assets.

The cost of pensions and other post-employment benefits is actuarially determined using the projected benefit method based on length of service, and reflects
Management’s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected future health care costs.
The expected return on plan assets is based on the fair value of those assets. The accrued benefit obligation is discounted using the market interest rate on
high-quality corporate debt instruments as at the measurement date.

Pension expense for the defined benefit pension plan includes the cost of pension benefits earned during the current year, the interest cost on pension
obligations, the expected return on pension plan assets, the amortization of the net transitional obligation, the amortization of adjustments arising from pension
plan amendments and the amortization of the excess of the net actuarial gain or loss over 10 percent of the greater of the benefit obligation and the fair value of
plan assets. Amortization is done on a straight-line basis over a period covering the expected average remaining service lives of employees covered by the plans.

Pension expense for the defined contribution pension plans is recorded as the benefits are earned by the employees covered by the plans.

H) inCOmE taXEs
Encana follows the liability method of accounting for income taxes. Under this method, future income taxes are recorded for the effect of any difference between
the accounting and income tax basis of an asset or liability, using the substantively enacted income tax rates. Accumulated future income tax balances are
adjusted to reflect changes in income tax rates that are substantively enacted, with the adjustment being recognized in net earnings in the period that the
change occurs.

i) Earnings PEr sHarE amOunts
Basic net earnings per common share is computed by dividing the net earnings by the weighted average number of common shares outstanding during the
period. Diluted net earnings per common share amounts are calculated giving effect to the potential dilution that would occur if stock options, without tandem
share appreciation rights attached, were exercised or other contracts to issue common shares were exercised or converted to common shares. The treasury
stock method is used to determine the dilutive effect of stock options without tandem share appreciation rights attached and other dilutive instruments. The
treasury stock method assumes that proceeds received from the exercise of in-the-money stock options without tandem share appreciation rights attached
are used to repurchase common shares at the average market price.




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     j) CasH and CasH EQuivalEnts
     Cash and cash equivalents include short-term investments, such as money market deposits or similar type instruments, with a maturity of three months or
     less when purchased.

     k) PrOPErty, Plant and EQuiPmEnt
     UPStREAM
     Encana accounts for natural gas and crude oil properties in accordance with the Canadian Institute of Chartered Accountants’ (“CICA”) guideline on full cost
     accounting in the oil and gas industry. Under this method, all costs, including internal costs and asset retirement costs, directly associated with the acquisition
     of, the exploration for, and the development of natural gas, crude oil and NGL reserves are capitalized on a country-by-country cost centre basis.

     Costs accumulated within each cost centre are depleted using the unit-of-production method based on estimated proved reserves determined using estimated
     future prices and costs. For purposes of this calculation, oil is converted to gas on an energy equivalent basis. Capitalized costs subject to depletion include
     estimated future costs to be incurred in developing proved reserves. Proceeds from the divestiture of properties are normally deducted from the full cost pool
     without recognition of gain or loss unless that deduction would result in a change to the rate of depletion of 20 percent or greater, in which case a gain or loss
     is recorded. Costs of major development projects and costs of acquiring and evaluating significant unproved properties are excluded, on a cost centre basis, from
     the costs subject to depletion until it is determined whether or not proved reserves are attributable to the properties, or impairment has occurred. Costs that have
     been impaired are included in the costs subject to depletion.

     An impairment loss is recognized in net earnings when the carrying amount of a cost centre is not recoverable. The carrying amount of the cost centre is not
     recoverable if the carrying amount exceeds the sum of the undiscounted cash flows from proved reserves. If the sum of the cash flows is less than the carrying
     amount, the impairment loss is measured as the amount by which the carrying amount exceeds the sum of:

            i) the fair value of proved and probable reserves; and
            ii) the costs of unproved properties that have been subject to a separate impairment test.

     MARkEt OPtIMIzAtION
     Midstream facilities, including power generation facilities, are carried at cost and depreciated on a straight-line basis over the estimated service lives of the
     assets, which range from 20 to 25 years.

     CORPORAtE
     Costs associated with office furniture, fixtures, leasehold improvements, information technology and aircraft are carried at cost and depreciated on a straight-line
     basis over the estimated service lives of the assets, which range from three to 25 years. Assets under construction are not subject to depreciation until put into
     use. Land is carried at cost.

     l) CaPitaliZatiOn OF COsts
     Expenditures related to renewals or betterments that improve the productive capacity or extend the life of an asset are capitalized. Maintenance and repairs are
     expensed as incurred.

     Interest is capitalized during the construction phase of large capital projects.

     m) gOOdwill
     Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is assessed for impairment at least annually as at December 31 of
     each year. Goodwill and all other assets and liabilities have been allocated to the country cost centre levels, referred to as reporting units. To assess impairment,
     the fair value of each reporting unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book
     value, then a second test is performed to determine the amount of the impairment. The amount of the impairment is determined by deducting the fair value of the
     reporting unit’s assets and liabilities from the fair value of the reporting unit to determine the implied fair value of goodwill and comparing that amount to the
     book value of the reporting unit’s goodwill. Any excess of the book value of goodwill over the implied fair value of goodwill is the impairment amount.




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n) assEt rEtirEmEnt ObligatiOn
The fair value of estimated asset retirement obligations is recognized in the Consolidated Balance Sheet when incurred and a reasonable estimate of fair value
can be made.

Asset retirement obligations include those legal obligations where the Company will be required to retire tangible long-lived assets such as producing well sites,
offshore production platforms and natural gas processing plants. The asset retirement cost, equal to the initially estimated fair value of the asset retirement
obligation, is capitalized as part of the cost of the related long-lived asset. Changes in the estimated obligation resulting from revisions to estimated timing or
amount of undiscounted cash flows are recognized as a change in the asset retirement obligation and the related asset retirement cost.

Amortization of asset retirement costs are included in depreciation, depletion and amortization in the Consolidated Statement of Earnings. Increases in the asset
retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligation in the Consolidated Statement of Earnings.

Actual expenditures incurred are charged against the accumulated obligation.

O) stOCk-basEd COmPEnsatiOn
Obligations for payments of cash or common shares under Encana’s share appreciation rights, stock options with tandem share appreciation rights attached,
deferred share and performance share unit plans are accrued as compensation costs over the vesting period using the intrinsic value method.

Obligations for payments for share options of Cenovus Energy Inc. (“Cenovus”) held by Encana employees are accrued as compensation costs based on the
fair value of the financial liability.

Fluctuations in the underlying common share prices change the accrued compensation cost and are recognized when they occur.

P) FinanCial instrumEnts
Financial instruments are measured at fair value on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial
instrument has been classified as “held-for-trading”, “available-for-sale”, “held-to-maturity”, “loans and receivables”, or “other financial liabilities” as defined
by the accounting standard.

Financial assets and financial liabilities “held-for-trading” are measured at fair value with changes in those fair values recognized in net earnings. Financial assets
“available-for-sale” are measured at fair value, with changes in those fair values recognized in other comprehensive income (“OCI”). Financial assets “held-to-
maturity”, “loans and receivables” and “other financial liabilities” are measured at amortized cost using the effective interest method of amortization.

Cash and cash equivalents, accounts receivable and accounts payable relating to share options of Encana held by Cenovus employees, and accounts payable
for share options of Cenovus held by Encana employees are designated as “held-for-trading” and are measured at fair value.

With the exception of accounts receivable relating to share options of Encana held by Cenovus employees, accounts receivable and accrued revenues are
designated as “loans and receivables”.

With the exception of accounts payable relating to share options of Encana held by Cenovus employees and accounts payable relating to share options of
Cenovus held by Encana employees, accounts payable and accrued liabilities and long-term debt are designated as “other financial liabilities”.

Encana capitalizes long-term debt transaction costs, premiums and discounts. These costs are capitalized within long-term debt and amortized using the effective
interest method.

RISk MANAGEMENt ASSEtS AND LIABILItIES
Risk management assets and liabilities are derivative financial instruments classified as “held-for-trading” unless designated for hedge accounting. Derivative
instruments that do not qualify for hedge accounting, or are not designated as hedges for accounting purposes, are recorded at fair value whereby instruments
are recorded in the Consolidated Balance Sheet as either an asset or liability with changes in fair value recognized in net earnings. Realized gains or losses
from financial derivatives related to natural gas and crude oil commodity prices are recognized in natural gas and crude oil revenues as the contracts are settled.
Realized gains or losses from financial derivatives related to power commodity prices are recognized in operating costs as the related power contracts are settled.
Unrealized gains and losses are recognized at the end of each respective reporting period based on the changes in fair value of the contracts. The estimated fair
value of all derivative instruments is based on quoted market prices or, in their absence, third-party market indications and forecasts.




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     Derivative financial instruments are used by Encana to manage economic exposure to market risks relating to commodity prices, foreign currency exchange rates
     and interest rates. The Company’s policy is not to utilize derivative financial instruments for speculative purposes.

     Encana has in place policies and procedures with respect to the required documentation and approvals for the use of derivative financial instruments and
     specifically ties their use, in the case of commodities, to the mitigation of market price risk associated with cash flows expected to be generated from budgeted
     capital programs, and in other cases to the mitigation of market price risks for specific assets and obligations. When applicable, the Company identifies
     relationships between financial instruments and anticipated transactions, as well as its risk management objective and the strategy for undertaking the economic
     hedge transaction. Where specific financial instruments are executed, the Company assesses, both at the time of purchase and on an ongoing basis, whether the
     financial instrument used in the particular transaction is effective in offsetting changes in fair values or cash flows of the transaction.

     Q) rEClassiFiCatiOn
     Certain information provided for prior years has been reclassified to conform to the presentation adopted in 2010.

     2. changes in accounting policies anD practices

     New Accounting Standards Adopted
     On January 1, 2010, Encana adopted the following CICA Handbook sections:

     •	 “Business	Combinations”,	Section	1582,	which	replaces	the	previous	business	combinations	standard.	The	standard	requires	assets	and	liabilities	acquired	
        in a business combination, contingent consideration and certain acquired contingencies to be measured at their fair values as of the date of acquisition. In
        addition, acquisition-related and restructuring costs are to be recognized separately from the business combination and included in the statement of earnings.
        The adoption of this standard has had no material impact on the accounting treatment of business combinations entered into after January 1, 2010.

     •	 “Consolidated	Financial	Statements”,	Section	1601,	which,	together	with	Section	1602	below,	replace	the	former	consolidated	financial	statements	standard.	
        Section	1601	establishes	the	requirements	for	the	preparation	of	consolidated	financial	statements.	The	adoption	of	this	standard	has	had	no	material	impact	
        on Encana’s Consolidated Financial Statements.

     •	 “Non-controlling	Interests”,	Section	1602,	which	establishes	the	accounting	for	a	non-controlling	interest	in	a	subsidiary	in	consolidated	financial	statements	
        subsequent to a business combination. The standard requires a non-controlling interest in a subsidiary to be classified as a separate component of equity.
        In addition, net earnings and components of other comprehensive income are attributed to both the parent and non-controlling interest. The adoption of this
        standard has had no material impact on Encana’s Consolidated Financial Statements.

     The above CICA Handbook sections are converged with International Financial Reporting Standards (“IFRS”).

     International Financial Reporting Standards
     Effective January 1, 2011, the Company will be required to report its Consolidated Financial Statements in accordance with IFRS, including 2010 comparative
     information. Encana is in the final stages of its IFRS changeover plan and expects to report its first quarter 2011 results in accordance with IFRS in April 2011.
     Based on current International standards, Encana expects the transition to IFRS will not have a major impact on the Company’s operations, strategic decisions
     and cash flows.

     3. split transaction

     On November 30, 2009, Encana completed a corporate reorganization (the “Split Transaction”) to split into two independent publicly traded energy companies
     – Encana Corporation, a natural gas company, and Cenovus Energy Inc., an integrated oil company.

     Under the Split Transaction, Encana shareholders received one new Encana common share and one Encana special share in exchange for each Encana common
     share previously held. The book value of Encana’s outstanding common shares immediately prior to the Split Transaction was attributed to the new Encana
     common shares and the Encana special shares in direct proportion to the weighted average trading price of the shares on a “when issued” basis. In accordance
     with	the	calculation,	the	value	attributed	to	the	new	Encana	common	shares	and	the	Encana	special	shares	was	$2,360	million	and	$2,222	million,	respectively.	
     The Encana special shares were subsequently exchanged by Encana shareholders for common shares of Cenovus, thereby effecting the Split Transaction.




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Under the Split Transaction, Encana’s downstream refining operations and certain upstream oil and gas assets were transferred to Cenovus. The historical results
associated with the upstream assets transferred are reported as continuing operations in accordance with full cost accounting requirements (See Note 4). The
historical results associated with the downstream refining operations have been presented as discontinued operations (See Note 5).

In	conjunction	with	the	proposed	reorganization,	on	September	18,	2009,	Cenovus	completed	a	private	offering	of	senior	unsecured	notes	for	an	aggregate	
principal	amount	of	$3,500	million.	The	net	proceeds	from	the	private	offering	of	$3,468	million	were	held	in	escrow	until	the	Split	Transaction	was	completed.	
The unsecured notes (“Cenovus Notes”) were transferred under the Split Transaction.

The following table presents the net assets transferred to Cenovus at book value under the Split Transaction on November 30, 2009.

Net Assets Transferred Under the Split Transaction

Assets
		 Cash	and	restricted	cash	                                                                                                                             $		 3,996
   Property, plant and equipment, net
       Oil and gas                                                                                                                                            9,329
       Downstream refining (See Note 5)                                                                                                                       4,710
		 Partnership	contribution	receivable,	including	current	portion	                                                                                       	    2,835
		 Goodwill	                                                                                                                                             	    1,083
   Other current and non-current assets                                                                                                                       2,094
                                                                                                                                                             24,047
Liabilities
   Notes payable to Encana                                                                                                                                    3,750
		 Cenovus	Notes	                                                                                                                                        	    3,436
		 Partnership	contribution	payable,	including	current	portion	                                                                                          	    2,857
   Future income taxes                                                                                                                                        2,314
   Other current and non-current liabilities                                                                                                                  2,470
	   	   	                                                                                                                                                	 14,827
Net Assets Transferred Under the Split Transaction                                                                                                       $ 9,220

The Split Transaction reduced total shareholders’ equity by $9,220 million, reflected as a reduction in share capital of $2,222 million, a reduction in retained
earnings	of	$4,902	million	and	a	reduction	in	AOCI	of	$2,096	million.

Following the Split Transaction, Encana received amounts due from Cenovus of approximately $3.75 billion.

4. segmenteD inFormation

The Company’s operating and reportable segments are as follows:

•	 Canada includes the Company’s exploration for, development of, and production of natural gas, crude oil and NGLs and other related activities within the
   Canadian cost centre.

•	 USA includes the Company’s exploration for, development of, and production of natural gas, NGLs and other related activities within the U.S. cost centre.

•	 Market Optimization is primarily responsible for the sale of the Company’s proprietary production. These results are included in the Canada and USA
   segments. Market optimization activities include third-party purchases and sales of product that provide operational flexibility for transportation commitments,
   product type, delivery points and customer diversification. These activities are reflected in the Market Optimization segment.

•	 Corporate and Other mainly includes unrealized gains or losses recorded on derivative financial instruments. Once amounts are settled, the realized gains
   and losses are recorded in the operating segment to which the derivative instrument relates.

Market Optimization markets substantially all of the Company’s upstream production to third-party customers. Transactions between segments are based on
market values and eliminated on consolidation. The tables in this note present financial information on an after eliminations basis.




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     Encana has a decentralized decision-making and reporting structure. Accordingly, the Company reports its divisional results as follows:

     •	 Canadian Division, which includes natural gas exploration, development and production assets located in British Columbia and Alberta, as well as the Deep
        Panuke natural gas project offshore Nova Scotia. Four key resource plays are located in the Division: (i) Greater Sierra in northeast British Columbia, including
        Horn River; (ii) Cutbank Ridge in Alberta and British Columbia, including Montney; (iii) Bighorn in west central Alberta; and (iv) Coalbed Methane in southern Alberta.

     •	 USA Division, which includes the natural gas exploration, development and production assets located in the U.S. Five key resource plays are located in
        the Division: (i) Jonah in southwest Wyoming; (ii) Piceance in northwest Colorado; (iii) East Texas in Texas; (iv) Haynesville in Louisiana and Texas; and (v)
        Fort Worth in Texas.

     •	 Canada – Other includes the combined results from the former Canadian Plains Division and Integrated Oil – Canada.

     Comparative results presented prior to the November 30, 2009 Split Transaction include the results of operations from assets transferred to Cenovus. The former
     Canadian Plains and Integrated Oil – Canada upstream operations are presented as Canada – Other within continuing operations. The former Integrated Oil
     Downstream Refining operations are reported as discontinued operations as disclosed in Note 5.

     rEsults OF COntinuing OPEratiOns
     Segment and Geographic Information
                                                                        Canada                                    USA                                Market Optimization
     For the years ended December 31                       2010	    	   2009	    	   2008	    	   2010	      	   2009	    	    2008	    	   2010	      	    2009	    	     2008
     Revenues, Net of Royalties                        $ 2,829	     $	 7,585	    $	10,050	    $ 4,275	      $	 4,537	     $	 5,629	     $    797	      $	 1,607	     $	 2,655
     Expenses
        Production and mineral taxes                          8	    	       53	 	      108	 	      209	      	    118	    	     370	    	      –                –             –
        Transportation                                      197           750        1,202         662            530           502            –                –             –
        Operating                                           561	    	   1,118	 	     1,333	        468	     	     434	    	     618	          33	      	       26	   	       45
        Purchased product                                     –	    	      (85)	 	    (151)	 	       –              –             –          739            1,545         2,577
                                                           2,063	   	   5,749	   	   7,558	   	   2,936          3,455         4,139           25	     	       36	   	       33
            Depreciation, depletion
              and amortization                             1,242	   	   1,980	   	   2,198	       1,912	    	    1,561	   	    1,691	   	      11              20            15
     Segment Income (Loss)                             $    821	    $	 3,769	    $	 5,360     $ 1,024	       $	 1,894	    $	 2,448	     $      14	     $	      16	   $	      18

                                                                                                           Corporate & Other                            Consolidated
                                                                                                  2010	      	   2009	    	    2008	    	   2010	      	    2009	    	     2008
     Revenues, Net of Royalties                                                               $    969	     $	 (2,615)	 $	 2,719	       $ 8,870        $ 11,114      $ 21,053
     Expenses
        Production and mineral taxes                                                                  –              –             –          217	     	      171	   	      478
        Transportation                                                                                –              –             –          859	     	    1,280	   	    1,704
        Operating                                                                                    (1)            49           (13)       1,061	     	    1,627	   	    1,983
        Purchased product                                                                             –              –             –          739	     	    1,460	   	    2,426
                                                                                                   970	     	 (2,664)	 	       2,732	   	   5,994	     	    6,576	   	 14,462
            Depreciation, depletion and amortization                                                77           143             131        3,242           3,704       4,035
     Segment Income (Loss)                                                                    $    893	      $	 (2,807)	 $	 2,601	          2,752	     	    2,872	   	 10,427
            Administrative                                                                                                                    359            477            447
            Interest, net                                                                                                                     501            405            402
            Accretion of asset retirement obligation                                                                                           46              71            77
            Foreign exchange (gain) loss, net                                                                                                (216)            (22)          423
            (Gain) loss on divestitures                                                                                                         2               2          (141)
                                                                                                                                             692	      	     933	    	    1,208
     Net Earnings Before Income Tax                                                                                                         2,060           1,939         9,219
        Income tax expense                                                                                                                    561             109         2,720
     Net Earnings From Continuing Operations                                                                                            $ 1,499	       $	 1,830	     $	 6,499



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rEsults OF COntinuing OPEratiOns
Product and Divisional Information
                                                                                                                Canada Segment
                                                                Canadian Division                               Canada – Other *                                   Total
For the years ended December 31                        2010	      	    2009	     	    2008	      	      2010	    	     2009	      	    2008	   	     2010	    	    2009	    	     2008
Revenues, Net of Royalties                        $ 2,829	        $	 3,362	      $	 4,355	       $         –	    $	 4,223	        $	 5,695	    $ 2,829	       $	 7,585	     $	10,050
Expenses
   Production and mineral taxes                            8             14              33                –              39             75             8	    	       53	 	        108
   Transportation                                        197            154             239                –	    	      596	 	          963	 	        197           750          1,202
   Operating                                             561	     	     536	     	      609	     	         –	    	      582	 	          724	 	        561	    	   1,118	 	       1,333
   Purchased product                                       –              –               –                –	    	       (85)	 	       (151)	 	         –	    	      (85)	 	      (151)
Operating Cash Flow                               $ 2,063	        $	 2,658	      $	 3,474	       $         –	    $	 3,091	        $	 4,084	    $ 2,063	       $	 5,749	     $	 7,558

                                                                                                                Canadian Division
                                                                        Gas                                          Oil & NGLs                                    Other
For the years ended December 31                        2010	      	    2009	     	    2008	      	      2010	    	     2009	      	    2008	   	     2010	    	    2009	    	     2008
Revenues, Net of Royalties                        $ 2,480         $ 3,041        $ 3,720         $       305	    $	     277	      $	    578	   $        44    $       44    $          57
Expenses
   Production and mineral taxes                            7	     	      11	     	       28	     	         1              3               5              –             –                –
   Transportation                                        194	     	     148	     	      201	     	         3	    	        6	      	      12	   	         –	   	        –	   	          26
   Operating                                             531            501             549               16             21              39             14            14               21
Operating Cash Flow                               $ 1,748	        $	 2,381	      $	 2,942	       $       285     $      247       $     522    $        30    $       30    $          10

                                                                                                                                                                   Total
                                                                                                                                                     2010	    	    2009	    	     2008
Revenues, Net of Royalties                                                                                                                     $ 2,829	       $	 3,362	     $	 4,355
Expenses
   Production and mineral taxes                                                                                                                         8            14              33
   Transportation                                                                                                                                     197           154             239
   Operating                                                                                                                                          561	    	     536	    	       609
Operating Cash Flow                                                                                                                            $ 2,063	       $	 2,658	     $	 3,474
* Includes the operations formerly known as the Canadian Plains Division and Integrated Oil – Canada.




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     rEsults OF COntinuing OPEratiOns
     Product and Divisional Information
                                                                                                                          USA Division
                                                                             Gas                                          Oil & NGLs                                   Other
     For the years ended December 31                        2010	      	    2009	     	    2008	      	      2010	    	      2009	       	    2008	   	   2010	   	    2009	   	    2008
     Revenues, Net of Royalties                        $ 3,912         $ 4,222        $ 4,934         $       244     $       201        $     407    $    119	   $	    114	   $	    288
     Expenses
        Production and mineral taxes                          185            100             334               24	    	        18	       	      36	   	      –            –            –
        Transportation                                        662            530             502                –               –                –           –            –            –
        Operating                                             393            327             352                –               –                –          75	   	     107	   	     266
     Operating Cash Flow                               $ 2,672	        $	 3,265	      $	 3,746	       $       220	    $	      183	       $	    371	   $     44    $       7    $      22

                                                                                                                                                                       Total
                                                                                                                                                          2010	   	    2009	   	    2008
     Revenues, Net of Royalties                                                                                                                       $ 4,275	    $	 4,537	    $	 5,629
     Expenses
        Production and mineral taxes                                                                                                                       209	   	     118	   	     370
        Transportation                                                                                                                                     662          530          502
        Operating                                                                                                                                          468	   	     434	   	     618
     Operating Cash Flow                                                                                                                              $ 2,936     $ 3,455      $ 4,139

                                                                                                                     Canada – Other *
                                                                             Gas                                          Oil & NGLs                                   Other
     For the years ended December 31                        2010	      	    2009	     	    2008	      	      2010	    	      2009	       	    2008	   	   2010	   	    2009	   	    2008
     Revenues, Net of Royalties                        $         –	    $	 1,781	      $	 2,301	       $         –	    $	 2,287	          $	 3,223	    $      –    $     155    $     171
     Expenses
        Production and mineral taxes                             –	    	      15	     	       36	     	         –	    	        23	       	      38	   	      –            1            1
        Transportation                                           –            37              71                –	    	       535	       	     847	   	      –           24           45
        Operating                                                –	    	     186	     	      241	     	         –	    	       356	       	     409	   	      –           40           74
        Purchased product                                        –             –               –                –               –                –           –	   	     (85)	 	     (151)
     Operating Cash Flow                               $         –     $ 1,543        $ 1,953         $         –     $ 1,373            $ 1,929      $      –    $     175    $     202

                                                                                                                                                                       Total
                                                                                                                                                          2010	   	    2009	   	    2008
     Revenues, Net of Royalties                                                                                                                       $      –	   $	 4,223	    $	 5,695
     Expenses
        Production and mineral taxes                                                                                                                         –            39          75
        Transportation                                                                                                                                       –	   	     596	 	       963
        Operating                                                                                                                                            –	   	     582	 	       724
        Purchased product                                                                                                                                    –	   	      (85)	 	    (151)
     Operating Cash Flow                                                                                                                              $      –	   $	 3,091	    $	 4,084
     * Includes the operations formerly known as the Canadian Plains Division and Integrated Oil – Canada.




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Capital Expenditures (Continuing Operations)
For the years ended December 31                                                                                               2010	      	    2009	      	     2008
Capital
   Canadian Division                                                                                                      $ 2,211	       $	 1,869	       $	 2,459
   Canada – Other                                                                                                               –	       	    848	       	 1,500
    Canada                                                                                                                   2,211           2,717             3,959
    USA                                                                                                                      2,499	      	   1,821	      	     2,682
    Market Optimization                                                                                                          2               2                17
    Corporate & Other                                                                                                           61	      	      85	      	       165
                                                                                                                          $ 4,773	       $	 4,625	       $	 6,823

In	2007	and	2008,	Encana	acquired	certain	land	and	property	in	Louisiana	and	Texas.	Three	transactions	were	facilitated	by	unrelated	parties.	These	unrelated	
parties held the majority of the assets in trust for the Company in anticipation of a qualifying like kind exchange for U.S. tax purposes for $457 million,
$101 million and $2.55 billion. During the six-month period following the transactions, each unrelated party represented an interest in a Variable Interest
Entity whereby Encana was the primary beneficiary and consolidated the respective unrelated party. Upon completion of each arrangement, the assets were
transferred to Encana.

Additions to Goodwill
There were no additions to goodwill during 2010 or 2009.

As a result of the Split Transaction, a portion of goodwill was transferred to Cenovus (See Note 3).

Property, Plant and Equipment and Total Assets by Segment
                                                                                                       Property, Plant and Equipment            Total Assets
As at December 31                                                                                             2010            2009            2010             2009
Canada                                                                                                    $ 13,193	       $	11,162	      $ 14,823	       $	12,748
USA                                                                                                         13,963          13,929         15,154	       	 14,962
Market Optimization                                                                                            121             124            193             303
Corporate & Other                                                                                            1,424	       	    958	      	 3,850	        	 5,814
Total                                                                                                     $ 28,701	       $	26,173       $ 34,020	       $	33,827

In	January	2008,	Encana	signed	the	contract	for	the	design	and	construction	of	the	Production	Field	Centre	(“PFC”)	for	the	Deep	Panuke	project.	As	at	December	31,	
2010,	Canada	property,	plant	and	equipment	and	total	assets	includes	Encana’s	accrual	to	date	of	$528	million	(2009	–	$427	million)	related	to	this	offshore	
facility as an asset under construction.

In February 2007, Encana announced that it had entered into a 25-year lease agreement with a third-party developer for The Bow office project. As at December 31,
2010,	Corporate	and	Other	property,	plant	and	equipment	and	total	assets	includes	Encana’s	accrual	to	date	of	$1,090	million	(2009	–	$649	million)	related	to	
this office project as an asset under construction.

Corresponding liabilities for these projects are included in other liabilities in the Consolidated Balance Sheet. There is no effect on the Company’s net earnings
or cash flows related to the capitalization of The Bow office project or the Deep Panuke PFC.

For further information relating to the PFC and The Bow office project, refer to Note 19.




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     Goodwill, Property, Plant and Equipment and Total Assets by Geographic Region
                                                                                           Goodwill          Property, Plant and Equipment          Total Assets
     As at December 31                                                              2010              2009         2010           2009           2010              2009
     Canada                                                                    $ 1,252         $ 1,190         $ 14,685	      $	12,181	      $ 18,393	       $	18,682
     United States                                                                 473             473           14,016	      	 13,982	        15,438          15,099
     Other Countries                                                                 –               –                –             10            189	       	     46
     Total                                                                     $ 1,725	        $	 1,663	       $ 28,701	      $	26,173	      $ 34,020	       $	33,827


     Export Sales
     Sales of natural gas, crude oil and NGLs produced or purchased in Canada delivered to customers outside of Canada were $292 million (2009 – $757 million;
     2008	–	$1,874	million).

     Major Customers
     In connection with the marketing and sale of Encana’s own and purchased natural gas and crude oil for the year ended December 31, 2010, the Company had
     one	customer	(2009	–	one;	2008	–	one),	which	individually	accounted	for	more	than	10	percent	of	Encana’s	consolidated	revenues,	net	of	royalties.	Sales	to	
     this	customer,	which	has	an	investment	grade	credit	rating,	were	approximately	$1,055	million	(2009	–	$1,755	million;	2008	–	$2,413	million).

     5. DiscontinueD operations

     As a result of the Split Transaction described in Note 3, Encana transferred its Downstream Refining operations to Cenovus. These operations have been
     accounted for as discontinued operations. Downstream Refining focused on the refining of crude oil into petroleum and chemical products at two refineries
     located in the United States. These refineries were jointly owned with ConocoPhillips. There were no assets or liabilities related to discontinued operations
     as at December 31, 2010 and December 31, 2009.

     COnsOlidatEd statEmEnt OF Earnings
     The following table presents the effect of discontinued operations in the Consolidated Statement of Earnings:

     For the years ended December 31                                                                                              2010	      	   2009	       	     2008
     Revenues, Net of Royalties                                                                                               $       –	     $	 4,804	       $	 9,011
     Expenses
        Operating                                                                                                                     –	     	     416	      	       492
        Purchased product                                                                                                             –	     	   4,070	      	     8,760
        Depreciation, depletion and amortization                                                                                      –	     	     173	      	       188
        Administrative                                                                                                                –	     	      44	      	        26
        Interest, net                                                                                                                 –	     	     163	      	       184
        Accretion of asset retirement obligation                                                                                      –              2                 2
        Foreign exchange (gain) loss, net                                                                                             –              1                 –
        (Gain) loss on divestitures                                                                                                   –              –                 1
                                                                                                                                      –	     	   4,869	      	     9,653
     Net Earnings (Loss) Before Income Tax                                                                                            –	     	     	(65)		   	      (642)
        Income tax expense (recovery)                                                                                                 –	     	     	(97)	    	        (87)
     Net Earnings (Loss) From Discontinued Operations                                                                         $       –      $      32       $      (555)

     Net Earnings (Loss) From Discontinued Operations per Common Share
        Basic                                                                                                                 $       –      $    0.04       $     (0.74)
        Diluted                                                                                                               $       –      $    0.04       $     (0.73)




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6. acquisitions anD Divestitures

For the years ended December 31                                                                                                                2010	        	     2009	       	      2008
Acquisitions
   Canadian Division                                                                                                                       $     592        $      190        $        151
   Canada – Other                                                                                                                                  –                 3                   –
    Canada                                                                                                                                       592               193                151
    USA                                                                                                                                          141	       	       46	       	     1,023
    Corporate & Other                                                                                                                              –                24                  –
    Total Acquisitions                                                                                                                           733	       	      263	       	     1,174
Divestitures
   Canadian Division                                                                                                                            (288)            (1,000)              (400)
   Canada – Other                                                                                                                                  –                 (17)               (47)
    Canada                                                                                                                                      (288)         (1,017)                 (447)
    USA                                                                                                                                         (595)             (73)                (251)
    Corporate & Other                                                                                                                              –	       	     (88)	       	       (206)
    Total Divestitures                                                                                                                          (883)	      	 (1,178)	        	       (904)
Net Acquisitions and Divestitures                                                                                                          $    (150)       $      (915)      $        270


aCQuisitiOns
Acquisitions in Canada and the USA include the purchase of various strategic lands and properties that complement existing assets within Encana’s portfolio.
In	2010,	acquisitions	were	$733	million	(2009	–	$263	million;	2008	–	$1,174	million).

divEstiturEs
Divestitures in Canada and the USA primarily include the sale of non-core oil and natural gas assets. In 2010, proceeds received on the sale of assets were
$883	million	(2009	–	$1,178	million;	2008	–	$904	million).

Corporate and Other
In	November	2009,	the	Company	completed	the	sale	of	Senlac	Oil	Limited	for	cash	consideration	of	$83	million.	

In	September	2008,	the	Company	completed	the	sale	of	its	interests	in	Brazil	for	net	proceeds	of	$164	million,	before	closing	adjustments,	resulting	in	a	gain	
on sale of $124 million. After recording income tax of $25 million, Encana recorded an after-tax gain of $99 million.

7. interest, net

For the years ended December 31                                                                                                                2010	        	     2009	       	      2008
Interest Expense – Long-Term Debt                                                                                                          $     485	       $	      533	      $	       556
Interest Expense – Other                                                                                                                          29                 40                 49
Interest Income*                                                                                                                                 (13)	      	      (168)	     	       (203)
                                                                                                                                           $     501        $      405        $        402
*	In	2009	and	2008,	Interest	Income	was	primarily	due	to	the	Partnership	Contribution	Receivable	which	was	transferred	to	Cenovus	under	the	Split	Transaction	(See	Note	3).




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     8. Foreign exchange (gain) loss, net

     For the years ended December 31                                                                                            2010	    	     2009	     	    2008
     Unrealized Foreign Exchange (Gain) Loss on:
        Translation of U.S. dollar debt issued from Canada                                                                 $    (282)	   $	    (978)	    $	 1,033
        Translation of U.S. dollar partnership contribution receivable issued from Canada *                                        –	    	      448	     	   (608)
     Other Foreign Exchange (Gain) Loss on:
        Monetary revaluations and settlements                                                                                     66	    	      508	     	        (2)
                                                                                                                           $    (216)    $       (22)    $     423
     * The Partnership Contribution Receivable was transferred to Cenovus under the Split Transaction (See Note 3).


     9. income taxes

     The provision for income taxes is as follows:

     For the years ended December 31                                                                                            2010	    	     2009	     	    2008
     Current
        Canada                                                                                                             $    (175)	   $	 1,623	       $	    547
        United States                                                                                                            (49)         279              407
        Other Countries                                                                                                           11	    	      6	       	      43
     Total Current Tax                                                                                                          (213)	   	     1,908	    	      997
     Future                                                                                                                      774          (1,799)         1,723
                                                                                                                           $     561     $      109      $ 2,720

     Included	in	current	tax	for	2008	is	$25	million	related	to	the	sale	of	assets	in	Brazil	(See	Note	6).

     The following table reconciles income taxes calculated at the Canadian statutory rate with the actual income taxes:
     For the years ended December 31                                                                                            2010	    	     2009	     	    2008
     Net Earnings Before Income Tax                                                                                        $ 2,060       $ 1,939         $ 9,219
     Canadian Statutory Rate                                                                                                 28.2%         29.2%           29.7%
     Expected Income Tax                                                                                                         581	    	      566	     	    2,734
     Effect on Taxes Resulting from:
         Statutory and other rate differences                                                                                     39	    	     (199)	    	      167
         Effect of legislative changes                                                                                             6               –               –
         International financing                                                                                                 (78)	   	     (101)	    	     (268)
         Foreign exchange (gains) losses not included in net earnings                                                              6              20              47
         Non-taxable capital (gains) losses                                                                                      (38)	   	       (71)	   	        84
         Other                                                                                                                    45	    	     (106)	    	       (44)
                                                                                                                           $     561     $      109      $ 2,720

     Effective Tax Rate                                                                                                        27.2%	    	     5.6%	     	 29.5%




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The net future income tax liability consists of:

As at December 31                                                                                                            2010           2009
Future Tax Liabilities
    Property, plant and equipment in excess of tax values                                                               $ 4,106         $ 3,420
    Timing of partnership items                                                                                               –	        	    78
    Risk management                                                                                                         374              75
Future Tax Assets
    Non-capital and net capital losses carried forward                                                                       (285)           (174)
    Other                                                                                                                      35              (13)
Net Future Income Tax Liability                                                                                         $ 4,230	        $	 3,386

The approximate amounts of tax pools available are as follows:
As at December 31                                                                                                            2010           2009
Canada                                                                                                                  $ 8,086         $ 7,393
United States                                                                                                             6,200	        	 7,098
                                                                                                                        $ 14,286        $ 14,491

Included	in	the	above	tax	pools	are	$978	million	(2009	–	$691	million)	related	to	non-capital	and	net	capital	losses	available	for	carry	forward	to	reduce	taxable	
income in future years. The non-capital losses expire between 2015 and 2030.

10. property, plant anD equipment, net

                                                                                         2010                                               2009
                                                                                  Accumulated                                        Accumulated
As at December 31                                                          Cost        DD&A*               Net                Cost        DD&A*                  Net
Canada                                                               $ 26,808       $ (13,615)     $ 13,193	           $	 22,872	     $	 (11,710)	 $	 11,162
USA                                                                    22,987          (9,024)       13,963               21,021           (7,092)    13,929
Market Optimization                                                       227            (106)          121                  214               (90)      124
Corporate & Other                                                       1,937            (513)        1,424	           	   1,396	     	      (438)	 	    958
                                                                     $ 51,959       $ (23,258)     $ 28,701	           $	 45,503	     $	 (19,330)	 $	 26,173
* Depreciation, depletion and amortization.

Canada and USA property, plant and equipment include internal costs directly related to exploration, development and construction activities of $357 million
(2009	–	$383	million).	Costs	classified	as	administrative	expenses	have	not	been	capitalized	as	part	of	the	capital	expenditures.

Upstream costs in respect of significant unproved properties and major development projects are excluded from the country cost centre’s depletable base.
At the end of the year, these costs were:
As at December 31                                                                                                            2010	      	   2009	      	     2008
Canada                                                                                                                  $ 1,868	        $	 1,814	      $	 1,286
United States                                                                                                             1,162            1,304          3,501
Other Countries                                                                                                               –               10             10
                                                                                                                        $ 3,030	        $	 3,128	      $	 4,797




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     The costs excluded from depletable costs in Other Countries represent costs related to unproved properties incurred in cost centres that are considered to be
     in the pre-production stage. There were no proved reserves in these cost centres. All costs in these cost centres were capitalized. Ultimate recoverability of these
     costs was dependent upon the finding of proved oil and natural gas reserves. For the year ended December 31, 2010, the Company completed its impairment
     review of pre-production cost centres and determined that $10 million of costs should be charged to depreciation, depletion and amortization in the Consolidated
     Statement	of	Earnings	(2009	–	$26	million;	2008	–	$38	million).

     The prices used in the ceiling test evaluation of the Company’s natural gas and crude oil reserves at December 31, 2010 reflect benchmark prices (Henry Hub,
     AECO, WTI, Mixed Sweet Blend at Edmonton) adjusted for basis differentials to determine local reference prices, transportation costs and tariffs, heat content
     and quality as follows:
                                                                                                                                                          Cumulative
                                                                                                                                                           % Change
                                                                                   2011            2012          2013           2014           2015          to 2022
     Natural Gas ($/Mcf)
     	 Canada	                                                                       3.89	          4.45	          4.76	           4.95	          5.14	            12%
     	 United	States	                                                                4.29	          4.88	          5.22	           5.31	          5.48	            13%

     Crude Oil ($/barrel)
     	 Canada	                                                                     70.00	          73.27	         78.15	         77.21	          78.01	            (5)%

     Natural Gas Liquids ($/barrel)
     	 Canada	                                                                     62.89	          60.11	         60.01	         61.03	          63.54	           (11)%
     	 United	States	                                                              70.02	          73.20	         74.78	         75.91	          77.29	             (4)%


     11. investments anD other assets

     As at December 31                                                                                                                            2010            2009
     Long-Term Receivable                                                                                                                    $      80	      $	      81
     Deferred Pension Plan and Savings Plan                                                                                                         46               52
     Other                                                                                                                                         109               31
                                                                                                                                             $     235	      $	     164


     12. long-term Debt

     As at December 31                                                                                                              Note          2010            2009
     Canadian Dollar Denominated Debt
        Unsecured notes                                                                                                             A, B     $ 1,257         $ 1,194

     U.S. Dollar Denominated Debt
         Unsecured notes                                                                                                            A, C         6,400	      	    6,600
     Total Debt Principal                                                                                                             G          7,657            7,794
     Increase in Value of Debt Acquired                                                                                               D             50                52
     Debt Discounts and Transaction Costs                                                                                              E           (78)	     	       (78)
     Current Portion of Long-Term Debt                                                                                                 F          (500)            (200)
                                                                                                                                             $ 7,129	        $	 7,568




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a) OvErviEw

REVOLVING CREDIt AND tERM LOAN BORROwINGS
At December 31, 2010, Encana had in place a bank credit facility for C$4.5 billion or its equivalent amount in U.S. dollars ($4.5 billion). The facility, which
matures in October 2012, is fully revolving up to maturity. The facility is extendable from time to time, but not more than once per year, for a period not longer
than five years plus 90 days from the date of the extension request, at the option of the lenders and upon notice from Encana. The facility is unsecured and bears
interest at either the lenders’ rates for Canadian prime, U.S. base rate, Bankers’ Acceptances, or LIBOR plus applicable margins.

At	December	31,	2010,	one	of	Encana’s	subsidiaries	had	in	place	a	bank	credit	facility	totaling	$565	million.	The	facility,	which	matures	in	February	2013,	is	
guaranteed by Encana Corporation and is fully revolving up to maturity. The facility is extendable from time to time, but not more than once per year, for a period
not longer than five years plus 90 days from the date of the extension request, at the option of the lenders and upon notice from the subsidiary. This facility bears
interest at either the lenders’ U.S. base rate or LIBOR plus applicable margins.

Standby	fees	paid	in	2010	relating	to	revolving	credit	and	term	loan	agreements	were	approximately	$5	million	(2009	–	$4	million;	2008	–	$4	million).	

UNSECURED NOtES
Unsecured notes include medium-term notes and senior notes that are issued from time to time under trust indentures.

Encana has in place a debt shelf prospectus for Canadian unsecured medium-term notes in the amount of C$2.0 billion. The shelf prospectus provides that debt
securities in Canadian dollars or other foreign currencies may be issued from time to time in one or more series. Terms of the notes, including interest at either
fixed or floating rates and maturity dates, are determined by reference to market conditions at the date of issue. The shelf prospectus was filed in May 2009 and
expires in June 2011. At December 31, 2010, C$2.0 billion ($2.0 billion) of the shelf prospectus remained unutilized, the availability of which is dependent upon
market conditions.

Encana has in place a debt shelf prospectus for U.S. unsecured notes in the amount of $4.0 billion under the multijurisdictional disclosure system. The shelf
prospectus provides that debt securities in U.S. dollars or other foreign currencies may be issued from time to time in one or more series. Terms of the notes,
including interest at either fixed or floating rates and maturity dates, are determined by reference to market conditions at the date of issue. The shelf prospectus
was filed in April 2010 and expires in May 2012. At December 31, 2010, $4.0 billion of the shelf prospectus remained unutilized, the availability of which is
dependent upon market conditions.

b) Canadian unsECurEd nOtEs
                                                                                                                      C$ Principal
                                                                                                                          Amount              2010              2009
4.30% due March 12, 2012                                                                                                  $    500       $     503	      $	       478
5.80%	due	January	18,	2018	                                                                                               	    750             754	      	        716
                                                                                                                          $ 1,250        $ 1,257         $ 1,194


C) u.s. unsECurEd nOtEs
                                                                                                                                              2010              2009
7.65%	due	September	15,	2010	                                                                                                            $       –       $       200
6.30%	due	November	1,	2011	                                                                                                                    500               500
4.75% due October 15, 2013                                                                                                                     500               500
5.80%	due	May	1,	2014	                                                                                                                       1,000             1,000
5.90% due December 1, 2017                                                                                                                     700               700
6.50%	due	May	15,	2019		                                                                                                                 	     500               500
8.125%	due	September	15,	2030	                                                                                                           	     300               300
7.20% due November 1, 2031                                                                                                                     350               350
7.375% due November 1, 2031                                                                                                                    500               500
6.50%	due	August	15,	2034	                                                                                                               	     750               750
6.625%	due	August	15,	2037	                                                                                                              	     500               500
6.50%	due	February	1,	2038	                                                                                                              	     800	      	       800
                                                                                                                                         $ 6,400	        $	 6,600

The	5.80%	note	due	May	1,	2014	was	issued	by	the	Company’s	indirect	wholly	owned	subsidiary,	Encana	Holdings	Finance	Corp.	This	note	is	fully	and	
unconditionally guaranteed by Encana Corporation.


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     d) inCrEasE in valuE OF dEbt aCQuirEd
     Certain of the notes and debentures of the Company were acquired in business combinations and were accounted for at their fair value at the dates of
     acquisition. The difference between the fair value and the principal amount of the debt is being amortized over the remaining life of the outstanding debt
     acquired, approximately 20 years.

     E) dEbt disCOunts and transaCtiOn COsts
     Long-term debt transaction costs, premiums and discounts are capitalized within long-term debt and are being amortized using the effective interest method.
     During 2010, there were no transaction costs and discounts capitalized within long-term debt relating to the issuance of Canadian and U.S. unsecured notes
     (2009 – $4 million).

     F) CurrEnt POrtiOn OF lOng-tErm dEbt
                                                                                                                                                 2010             2009
     7.65%	due	September	15,	2010	                                                                                                           $      –       $      200
     6.30%	due	November	1,	2011	                                                                                                             	    500                –
                                                                                                                                             $    500       $      200


     g) mandatOry dEbt PaymEnts
                                                                                                                  C$ Principal      US$ Principal          Total US$
                                                                                                                      Amount             Amount           Equivalent
     2011                                                                                                             $      –           $     500          $       500
     2012                                                                                                                  500                   –                  503
     2013                                                                                                                    –                 500                  500
     2014                                                                                                                    –               1,000                1,000
     2015                                                                                                                    –                   –                    –
     Thereafter                                                                                                            750               4,400                5,154
     Total                                                                                                            $ 1,250            $ 6,400            $ 7,657


     13. asset retirement obligation

     The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and
     gas assets:
     As at December 31                                                                                                                           2010             2009
     Asset Retirement Obligation, Beginning of Year                                                                                          $    787       $ 1,230
     Liabilities Incurred                                                                                                                         101             21
     Liabilities Settled                                                                                                                          (26)           (52)
     Liabilities Divested                                                                                                                         (75)	     	    (26)
     Liabilities Transferred to Cenovus                                                                                                             –	      	  (692)
     Change in Estimated Future Cash Outflows                                                                                                     (38)            74
     Accretion Expense                                                                                                                             46             71
     Foreign Currency Translation                                                                                                                  25	      	   161
     Asset Retirement Obligation, End of Year                                                                                                $    820	      $	     787

     The	total	undiscounted	amount	of	estimated	cash	flows	required	to	settle	the	obligation	is	$4,696	million	(2009	–	$3,792	million),	which	has	been	discounted	at	
     6.27	percent	(2009	–	6.38	percent).	Most	of	these	obligations	are	not	expected	to	be	paid	for	several	years,	or	decades,	in	the	future	and	will	be	funded	from	
     general Company resources at that time.




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14. capital structure

The Company’s capital structure consists of shareholders’ equity plus debt, defined as long-term debt including the current portion. The Company’s objectives
when managing its capital structure are to:

    i) maintain financial flexibility to preserve Encana’s access to capital markets and its ability to meet its financial obligations; and
    ii) finance internally generated growth, as well as potential acquisitions.

The Company monitors its capital structure and short-term financing requirements using non-GAAP financial metrics consisting of Debt to Capitalization and
Debt to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”). These metrics are measures of the Company’s overall
financial strength and are used to steward the Company’s overall debt position.

Encana targets a Debt to Capitalization ratio of less than 40 percent. At December 31, 2010, Encana’s Debt to Capitalization ratio was 31 percent
(December 31, 2009 – 32 percent) calculated as follows:
As at December 31                                                                                                                                 2010            2009
Debt                                                                                                                                          $ 7,629	      $	 7,768
Shareholders’ Equity                                                                                                                           17,327	      	 16,614
Capitalization                                                                                                                                $ 24,956	     $	24,382
Debt to Capitalization Ratio                                                                                                                       31%             32%

Encana targets a Debt to Adjusted EBITDA of less than 2.0 times. At December 31, 2010, Debt to Adjusted EBITDA was 1.4x (December 31, 2009 – 1.3x;
December	31,	2008	–	0.6x)	calculated	on	a	trailing	12-month	basis	as	follows:
As at December 31                                                                                                               2010	         	   2009	     	     2008
Debt                                                                                                                        $ 7,629	          $	 7,768	     $	 9,005
Net Earnings from Continuing Operations                                                                                     $ 1,499	          $	 1,830	     $	 6,499
Add (deduct):
    Interest, net                                                                                                                 501               405            402
    Income tax expense                                                                                                            561               109          2,720
    Depreciation, depletion and amortization                                                                                    3,242             3,704          4,035
    Accretion of asset retirement obligation                                                                                       46                 71            77
    Foreign exchange (gain) loss, net                                                                                            (216)               (22)          423
    (Gain) loss on divestitures                                                                                                     2                  2          (141)
Adjusted EBITDA                                                                                                             $ 5,635	          $	 6,099	     $	14,015
Debt to Adjusted EBITDA                                                                                                          1.4x	        	    1.3x	    	       0.6x

Encana has a long-standing practice of maintaining capital discipline, managing its capital structure and adjusting its capital structure according to market
conditions to maintain flexibility while achieving the objectives stated above. To manage the capital structure, the Company may adjust capital spending, adjust
dividends paid to shareholders, purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt or repay existing debt.

The Company’s capital management objectives, evaluation measures, definitions and targets have remained unchanged over the periods presented. Encana is
subject to certain financial covenants in its credit facility agreements and is in compliance with all financial covenants.




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      15. share capital


      autHOriZEd
      The Company is authorized to issue an unlimited number of common shares, an unlimited number of first preferred shares and an unlimited number of second
      preferred shares.

      issuEd and Outstanding
      As at December 31                                                                                                 2010                             2009
                                                                                                              Number                            Number
                                                                                                             (millions)        Amount          (millions)       Amount
      Common Shares Outstanding, Beginning of Year                                                              751.3          $ 2,360        750.4         $ 4,557
      Common Shares Issued under Option Plans                                                                     0.4                5          0.4                5
      Common Shares Issued from PSU Trust                                                                           –                –          0.5               19
      Stock-Based Compensation                                                                                      –                2            –                1
      Common Shares Purchased                                                                                   (15.4)             (48)           –                –
      Common Shares Cancelled                                                                    (Note 3)           –                –	    	 (751.3)	       	 (4,582)
      New Encana Common Shares Issued                                                            (Note 3)           –                –	    	 751.3	         	 2,360
      Encana Special Shares Issued                                                               (Note 3)           –                –        751.3            2,222
      Encana Special Shares Cancelled                                                            (Note 3)           –                –       (751.3)          (2,222)
      Common Shares Outstanding, End of Year                                                                    736.3          $ 2,319	    	     751.3	     $	 2,360


      PEr sHarE amOunts
      The following table summarizes the common shares used in calculating net earnings per common share:

      For the years ended December 31 (in millions)                                                                               2010	    	      2009	     	    2008
      Weighted Average Common Shares Outstanding – Basic                                                                         739.7           751.0           750.1
      Effect of Dilutive Securities                                                                                                0.1             0.4             1.7
      Weighted Average Common Shares Outstanding – Diluted                                                                       739.8	    	     751.4	     	    751.8


      nOrmal COursE issuEr bid
      Encana has received regulatory approval each year under Canadian securities laws to purchase common shares under nine consecutive Normal Course
      Issuer	Bids	(“NCIB”).	Encana	is	entitled	to	purchase,	for	cancellation,	up	to	36.8	million	common	shares	under	the	current	NCIB,	which	commenced	on	
      December 14, 2010 and terminates on December 13, 2011. During 2010, the Company purchased approximately 15.4 million common shares for total
      consideration	of	approximately	$499	million.	Of	the	amount	paid,	$6	million	was	charged	to	paid	in	surplus,	$48	million	was	charged	to	share	capital	and	
      $445 million was charged to retained earnings.

      During 2009, the Company did not purchase any of its common shares.

      During	2008,	the	Company	purchased	approximately	4.8	million	common	shares	for	total	consideration	of	approximately	$326	million.	Of	the	amount	paid,	
      $29	million	was	charged	to	share	capital	and	$297	million	was	charged	to	retained	earnings.	Included	in	the	common	shares	purchased	in	2008	are	2.0	million	
      common	shares	distributed,	valued	at	$16	million,	from	the	Encana	Employee	Benefit	Plan	Trust	that	vested	under	Encana’s	Performance	Share	Unit	(“PSU”)	Plan.	
      For these common shares distributed, there was a $54 million adjustment to retained earnings with a reduction to paid in surplus of $70 million.




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PErFOrmanCE sHarE units
In April 2009, the remaining 0.5 million common shares held in trust relating to Encana’s Performance Share Unit Plan were sold for total consideration of
$25	million.	Of	the	amount	received,	$19	million	was	credited	to	share	capital	and	$6	million	to	paid	in	surplus,	representing	the	excess	consideration	received	
over the original price of the common shares acquired by the trust. Effective May 15, 2009, the trust agreement was terminated.

EnCana stOCk OPtiOn Plan
Encana has stock-based compensation plans that allow employees to purchase common shares of the Company. Option exercise prices approximate the market
price for the common shares on the date the options were granted. Options granted are exercisable at 30 percent of the number granted after one year, an
additional 30 percent of the number granted after two years, are fully exercisable after three years and expire five years after the date granted. In addition,
certain stock options granted are performance based. The performance based stock options vest and expire under the same terms and service conditions as
the underlying option, and vesting is subject to Encana attaining prescribed performance relative to predetermined key measures. All options outstanding as
at	December	31,	2010	have	an	associated	Tandem	Share	Appreciation	Right	(“TSAR”)	attached	(See	Note	16).

At	December	31,	2010,	there	were	11.8	million	common	shares	reserved	for	issuance	under	stock	option	plans	(2009	–	9.6	million;	2008	–	16.5	million).

At December 31, 2009, the balance in paid in surplus relates to stock-based compensation programs.

EnCana sHarE units HEld by CEnOvus EmPlOyEEs
The share units described below include TSARs, Performance TSARs, Share Appreciation Rights (“SARs”) and Performance SARs.

As part of the Split Transaction, on November 30, 2009, each holder of Encana share units disposed of their right in exchange for the grant of new Encana share
units and Cenovus share units. The terms and conditions of the new share units are similar to the terms and conditions of the original share units.

With respect to Encana share units held by Cenovus employees and Cenovus share units held by Encana employees, both Encana and Cenovus have agreed to
reimburse each other for share units exercised for cash by their respective employees. Accordingly, for Encana share units held by Cenovus employees, Encana
has recorded a payable to Cenovus employees and a receivable due from Cenovus. The payable to Cenovus employees and the receivable due from Cenovus is
based on the fair value of the Encana share units determined using the Black-Scholes-Merton model (See Note 17). There is no impact on Encana’s net earnings
for share units held by Cenovus employees. No further Encana share units will be granted to Cenovus employees.

Cenovus employees can choose to exercise Encana TSARs and Encana Performance TSARs in exchange for Encana common shares or for cash. The following
table	summarizes	the	information	regarding	share	units	held	by	Cenovus	employees	as	at	December	31,	2010.	Refer	to	Note	16	for	information	regarding	share	
units held by Encana employees.
As at December 31                                                                                                                               2010
                                                                                                                                 Number of             Weighted
                                                                                                                                    Encana              Average
                                                                                                                                Share Units            Exercise
                                                                                                                                  (millions)              Price
Canadian Dollar Denominated (C$)
Encana TSARs held by Cenovus Employees
   Outstanding, End of Year                                                                                                               6.4              30.67
   Exercisable, End of Year                                                                                                               4.5              30.13

Encana Performance TSARs held by Cenovus Employees
   Outstanding, End of Year                                                                                                               7.1              31.61
   Exercisable, End of Year                                                                                                               3.6              31.74




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      16. compensation plans

      The following information relates to Encana’s compensation plans at December 31, 2010.

      As part of the Split Transaction, each holder of Encana share units disposed of their right in exchange for the grant of new Encana share units and Cenovus share
      units. The terms and conditions of the new share units are similar to the terms and conditions of the original share units. Share units include TSARs, Performance
      TSARs, SARs and Performance SARs.

      The original exercise price of the share units was apportioned to the Encana and Cenovus share units based on a valuation methodology that included the
      weighted average trading price of the new Encana common shares and the weighted average trading price of the Cenovus common shares on the Toronto Stock
      Exchange (“TSX”) on a “when issued” basis on December 2, 2009.

      For new Encana share units held by Encana employees, Encana accrues compensation cost over the vesting period based on the intrinsic method of accounting.

      For Cenovus share units held by Encana employees, Encana accrues compensation cost over the vesting period based on the fair value of the Cenovus share
      units. The fair value of the Cenovus share units is determined using the Black-Scholes-Merton model. At December 31, 2010, the fair value was estimated using
      the following weighted average assumptions: risk free rate of 1.7 percent, dividend yield of 2.4 percent, volatility of 22.5 percent and Cenovus closing market
      share	price	of	C$33.28	(See	Note	17).	No	further	Cenovus	share	units	will	be	granted	to	Encana	employees.

      Refer to Note 15 for information regarding Encana share units held by Cenovus employees.

      a) tandEm sHarE aPPrECiatiOn rigHts
      All options to purchase common shares issued under the stock option plan described in Note 15 have an associated TSAR attached to them whereby the option
      holder has the right to receive a cash payment equal to the excess of the market price of Encana’s common shares at the time of exercise over the exercise price
      of the right in lieu of exercising the option. The TSARs vest and expire under the same terms and conditions as the underlying option.

      The following table summarizes information related to the TSARs prior to the November 30, 2009 Split Transaction (See Note 3):
      As at December 31                                                                                    2010                                        2009
                                                                                                                  Weighted                                    Weighted
                                                                                                                   Average                                     Average
                                                                                           Outstanding            Exercise             Outstanding             Exercise
                                                                                                TSARs                Price                  TSARs                 Price
      Canadian Dollar Denominated (C$)
      Outstanding, Beginning of Year                                                                   –                  –           19,411,939                 53.97
         Granted                                                                                       –                  –	            4,030,680	               55.39
         Exercised – SARs                                                                              –                  –	           (1,994,556)	              42.65
         Exercised – Options                                                                           –                  –	               (60,914)	             34.89
         Forfeited                                                                                     –                  –	             (452,606)	              60.11
         Exchanged for new TSARs                                                                       –                  –          (20,934,543)                55.25
      Outstanding, End of Year                                                                         –                  –                      –                   –
      Exercisable, End of Year                                                                         –                  –                      –                   –




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The following tables summarize information related to the new Encana TSARs held by Encana employees:

As at December 31                                                                                 2010                                   2009
                                                                                                         Weighted                               Weighted
                                                                                                          Average                                Average
                                                                                 Outstanding             Exercise       Outstanding              Exercise
                                                                                      TSARs                 Price            TSARs                  Price
Canadian Dollar Denominated (C$)
Outstanding, Beginning of Year                                                    12,473,214                28.85                 –                    –
   New TSARs exchanged November 30, 2009                                                   –                    –	      12,556,585	                28.83
   Granted                                                                         4,796,595                32.59	           12,775	               29.96
   Exercised – SARs                                                               (2,499,993)               23.97           (54,075)	              21.26
   Exercised – Options                                                               (97,136)               20.90	             (206)	              22.65
   Forfeited                                                                        (432,413)               32.87	          (41,865)	              33.46
Outstanding, End of Year                                                          14,240,267                30.89	      12,473,214	                28.85
Exercisable, End of Year                                                           7,301,991                29.47	       7,713,376	                26.94

As at December 31, 2010                                                   Outstanding Encana TSARs                       Exercisable Encana TSARs
                                                                                    Weighted
                                                                                      Average            Weighted                               Weighted
                                                                                   Remaining              Average                                Average
                                                                 Number of        Contractual            Exercise       Number of               Exercise
Range of Exercise Price (C$)                                        TSARs          Life (years)             Price          TSARs                   Price
20.00 to 29.99                                                   7,093,900               1.45               27.68        5,358,068                 27.23
30.00 to 39.99                                                   6,999,717               3.32               33.86        1,855,933                 35.21
40.00 to 49.99                                                     145,150               2.41               44.72           87,090                 44.72
50.00 to 59.99                                                       1,500               2.39               50.39              900                 50.39
                                                                14,240,267               2.38               30.89        7,301,991                 29.47

The following tables summarize information related to the Cenovus TSARs held by Encana employees:
As at December 31                                                                                 2010                                   2009
                                                                                                         Weighted                               Weighted
                                                                                                          Average                                Average
                                                                                 Outstanding             Exercise       Outstanding              Exercise
                                                                                      TSARs                 Price            TSARs                  Price
Canadian Dollar Denominated (C$)
Outstanding, Beginning of Year                                                    12,482,694                26.08                  –                   –
   New TSARs exchanged November 30, 2009                                                   –                    –	      12,556,585	                26.07
   Exercised – SARs                                                               (3,847,458)               22.25	          (29,840)	              18.57
   Exercised – Options                                                              (105,469)               19.37	            (1,206)	             16.77
   Forfeited                                                                        (316,109)               29.86	          (42,845)	              30.17
Outstanding, End of Year                                                           8,213,658                27.81	      12,482,694	                26.08
Exercisable, End of Year                                                           5,977,506                27.38	       7,735,631	                24.35




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      As at December 31, 2010                                                     Outstanding Cenovus TSARs                         Exercisable Cenovus TSARs
                                                                                            Weighted
                                                                                              Average            Weighted                                  Weighted
                                                                                           Remaining              Average                                   Average
                                                                        Number of         Contractual            Exercise           Number of              Exercise
      Range of Exercise Price (C$)                                         TSARs           Life (years)             Price              TSARs                  Price
      20.00 to 29.99                                                     5,774,811                1.51              25.54           4,361,200                 25.30
      30.00 to 39.99                                                     2,360,197                2.06              32.84           1,569,116                 32.69
      40.00 to 49.99                                                        78,650                2.44              42.86              47,190                 42.86
                                                                         8,213,658                1.68              27.81           5,977,506                 27.38

      During the year, the Company recorded a net reduction of compensation costs of $2 million, which included a reduction of compensation costs of $33 million
      related to the Encana TSARs and compensation costs of $31 million related to the Cenovus TSARs (2009 – compensation costs of $5 million related to the
      outstanding	TSARs	prior	to	the	Split	Transaction,	$11	million	related	to	the	new	Encana	TSARs	and	$46	million	related	to	the	Cenovus	TSARs;	2008	–	reduction	
      of compensation costs of $47 million).

      b) PErFOrmanCE tandEm sHarE aPPrECiatiOn rigHts
      During	2007,	2008	and	2009,	under	the	terms	of	the	existing	Employee	Stock	Option	Plan,	Encana	granted	Performance	TSARs	under	which	the	employee	has	
      the right to receive a cash payment equal to the excess of the market price of Encana common shares at the time of exercise over the grant price. Performance
      TSARs vest and expire under the same terms and service conditions as the underlying option, and vesting is subject to Encana attaining prescribed performance
      relative to key predetermined measures. Performance TSARs that do not vest when eligible are forfeited.

      The following table summarizes information related to the Performance TSARs prior to the November 30, 2009 Split Transaction (See Note 3):
      As at December 31                                                                                   2010                                      2009
                                                                                                                 Weighted                                  Weighted
                                                                                          Outstanding             Average           Outstanding             Average
                                                                                         Performance             Exercise          Performance              Exercise
                                                                                               TSARs                Price                TSARs                 Price
      Canadian Dollar Denominated (C$)
      Outstanding, Beginning of Year                                                                 –                 –	           12,979,725	               63.13
         Granted                                                                                     –                 –              7,751,720               55.31
         Exercised – SARs                                                                            –                 –	              (144,707)	             56.09
         Exercised – Options                                                                         –                 –	                  (980)	             56.09
         Forfeited                                                                                   –                 –	            (2,041,565)	             62.64
         Exchanged for new Performance TSARs                                                         –                 –	          (18,544,193)	              59.97
      Outstanding, End of Year                                                                       –                 –                      –                   –
      Exercisable, End of Year                                                                       –                 –                      –                   –




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The following tables summarize information related to the new Encana Performance TSARs held by Encana employees:

As at December 31                                                                                2010                                  2009
                                                                                                        Weighted                              Weighted
                                                                                 Outstanding             Average       Outstanding             Average
                                                                                Performance             Exercise      Performance              Exercise
                                                                                      TSARs                Price            TSARs                 Price
Canadian Dollar Denominated (C$)
Outstanding, Beginning of Year                                                   10,461,901                31.42                  –                  –
   New Performance TSARs exchanged November 30, 2009                                      –                    –       10,491,119                31.42
   Exercised – SARs                                                                (251,443)               29.36             (2,070)             29.45
   Exercised – Options                                                                 (171)               29.04                  –                  –
   Forfeited                                                                     (1,102,718)               31.51	          (27,148)	             31.59
Outstanding, End of Year                                                           9,107,569               31.46	      10,461,901	               31.42
Exercisable, End of Year                                                           4,994,939               31.42	       2,235,899	               31.55

                                                                             Outstanding Encana                             Exercisable Encana
As at December 31, 2010                                                      Performance TSARs                              Performance TSARs
                                                                                   Weighted
                                                                                     Average            Weighted                              Weighted
                                                                                  Remaining              Average                               Average
                                                                Number of        Contractual            Exercise       Number of              Exercise
Range of Exercise Price (C$)                                       TSARs          Life (years)             Price          TSARs                  Price
20.00 to 29.99                                                   6,274,133              2.28               29.21        3,534,763                29.34
30.00 to 39.99                                                   2,833,436              2.12               36.44        1,460,176                36.44
                                                                 9,107,569              2.23               31.46        4,994,939                31.42

The following tables summarize information related to the Cenovus Performance TSARs held by Encana employees:
As at December 31                                                                                2010                                  2009
                                                                                                        Weighted                              Weighted
                                                                                 Outstanding             Average       Outstanding             Average
                                                                                Performance             Exercise      Performance              Exercise
                                                                                      TSARs                Price            TSARs                 Price
Canadian Dollar Denominated (C$)
Outstanding, Beginning of Year                                                   10,462,643                28.42                 –                   –
   New Performance TSARs exchanged November 30, 2009                                      –                    –	      10,491,119	               28.42
   Exercised – SARs                                                                (410,520)               26.54                 –                   –
   Exercised – Options                                                                 (991)               26.46                 –                   –
   Forfeited                                                                     (1,110,646)               28.49	          (28,476)	             28.49
Outstanding, End of Year                                                           8,940,486               28.49	      10,462,643	               28.42
Exercisable, End of Year                                                           4,827,858               28.49	       2,236,641	               28.54




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                                                                                       Outstanding Cenovus                                 Exercisable Cenovus
      As at December 31, 2010                                                          Performance TSARs                                   Performance TSARs
                                                                                              Weighted
                                                                                                Average            Weighted                                   Weighted
                                                                                             Remaining              Average                                    Average
                                                                          Number of         Contractual            Exercise            Number of              Exercise
      Range of Exercise Price (C$)                                           TSARs           Life (years)             Price               TSARs                  Price
      20.00 to 29.99                                                       6,107,050                2.29              26.42             3,367,682                26.55
      30.00 to 39.99                                                       2,833,436                2.12              32.96             1,460,176                32.96
                                                                           8,940,486                2.24              28.49             4,827,858                28.49

      During	the	year,	the	Company	recorded	net	compensation	costs	of	$4	million,	which	included	a	reduction	of	compensation	costs	of	$18	million	related	to	the	
      Encana Performance TSARs and compensation costs of $22 million related to the Cenovus Performance TSARs (2009 – compensation costs of $4 million related
      to the outstanding Performance TSARs prior to the Split Transaction, $20 million related to the new Encana Performance TSARs and $19 million related to the
      Cenovus	Performance	TSARs;	2008	–	a	reduction	of	compensation	costs	of	$6	million).

      C) sHarE aPPrECiatiOn rigHts
      Encana has a program whereby employees may be granted SARs, which entitle the employee to receive a cash payment equal to the excess of the market price
      of Encana’s common shares at the time of exercise over the exercise price of the right. SARs granted during 2010 and 2009 are exercisable at 30 percent of the
      number granted after one year, an additional 30 percent of the number granted after two years, are fully exercisable after three years and expire five years after
      the grant date.

      The following table summarizes information related to the SARs prior to the November 30, 2009 Split Transaction (See Note 3):
      As at December 31                                                                                     2010                                       2009
                                                                                                                   Weighted                                   Weighted
                                                                                                                    Average                                    Average
                                                                                            Outstanding            Exercise            Outstanding             Exercise
                                                                                                  SARs                Price                  SARs                 Price
      Canadian Dollar Denominated (C$)
      Outstanding, Beginning of Year                                                                   –                  –	            1,285,065	               72.13
         Granted                                                                                       –                  –	            1,126,850	               55.48
         Exercised – SARs                                                                              –                  –                   (990)              43.50
         Forfeited                                                                                     –                  –	               (60,365)	             66.64
         Exchanged for new SARs                                                                        –                  –	           (2,350,560)	              64.30
      Outstanding, End of Year                                                                         –                  –                      –                   –
      Exercisable, End of Year                                                                         –                  –                      –                   –




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The following tables summarize information related to the new Encana SARs held by Encana employees:

As at December 31                                                                                2010                                    2009
                                                                                                        Weighted                                Weighted
                                                                                                         Average                                 Average
                                                                                 Outstanding            Exercise         Outstanding             Exercise
                                                                                       SARs                Price               SARs                 Price
Canadian Dollar Denominated (C$)
Outstanding, Beginning of Year                                                     2,343,485               33.75                   –                   –
   New SARs exchanged November 30, 2009                                                    –                   –	         2,329,835	               33.78
   Granted                                                                                 –                   –	            19,525	               29.87
   Exercised                                                                         (35,535)              28.98                   –                   –
   Forfeited                                                                        (121,334)              33.23	             (5,875)	             32.24
Outstanding, End of Year                                                           2,186,616               33.86	         2,343,485	               33.75
Exercisable, End of Year                                                             993,370               35.39	           370,438	               37.93

As at December 31, 2010                                                    Outstanding Encana SARs                         Exercisable Encana SARs
                                                                                   Weighted
                                                                                     Average            Weighted                                Weighted
                                                                                  Remaining              Average                                 Average
                                                                Number of        Contractual            Exercise          Number of             Exercise
Range of Exercise Price (C$)                                        SARs          Life (years)             Price              SARs                 Price
20.00 to 29.99                                                   1,009,771               3.12              28.95            295,669                28.87
30.00 to 39.99                                                     997,945               2.30              36.55            590,361                36.64
40.00 to 49.99                                                     173,900               2.44              46.38            104,340                46.38
50.00 to 59.99                                                       5,000               2.46              50.09              3,000                50.09
                                                                 2,186,616               2.69              33.86            993,370                35.39

Beginning in January 2010, U.S. dollar denominated SARs were granted to eligible employees. The terms and conditions are similar to the Canadian dollar
denominated SARs. The following tables summarize information related to the U.S. dollar denominated SARs held by Encana employees at December 31, 2010:
As at December 31                                                                                2010                                    2009
                                                                                                        Weighted                                Weighted
                                                                                                         Average                                 Average
                                                                                 Outstanding            Exercise         Outstanding             Exercise
                                                                                       SARs                Price               SARs                 Price
U.S. Dollar Denominated (US$)
Outstanding, Beginning of Year                                                             –                   –                    –                      –
   Granted                                                                         4,864,490               30.73                    –                      –
   Forfeited                                                                        (145,900)              30.71                    –                      –
Outstanding, End of Year                                                           4,718,590               30.73                    –                      –
Exercisable, End of Year                                                               5,050               30.68                    –                      –




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      As at December 31, 2010                                                      Outstanding Encana SARs                            Exercisable Encana SARs
                                                                                            Weighted
                                                                                              Average            Weighted                                  Weighted
                                                                                           Remaining              Average                                   Average
                                                                         Number of        Contractual            Exercise            Number of             Exercise
      Range of Exercise Price (US$)                                          SARs          Life (years)             Price                SARs                 Price
      20.00 to 29.99                                                       477,325                4.75              28.31                     –                   –
      30.00 to 39.99                                                     4,241,265                4.16              31.00                 5,050               30.68
                                                                         4,718,590                4.22              30.73                 5,050               30.68

      The following tables summarize information related to the Cenovus SARs held by Encana employees:
      As at December 31                                                                                   2010                                      2009
                                                                                                                 Weighted                                  Weighted
                                                                                                                  Average                                   Average
                                                                                          Outstanding            Exercise           Outstanding             Exercise
                                                                                                SARs                Price                 SARs                 Price
      Canadian Dollar Denominated (C$)
      Outstanding, Beginning of Year                                                        2,323,960               30.55                     –                   –
         New SARs exchanged November 30, 2009                                                       –                   –	           2,329,835	               30.55
         Exercised                                                                            (44,327)              26.15                     –                   –
         Forfeited                                                                           (121,122)              30.11	               (5,875)	             29.17
      Outstanding, End of Year                                                              2,158,511               30.67	           2,323,960	               30.55
      Exercisable, End of Year                                                                979,635               32.08	             370,438	               34.30

      As at December 31, 2010                                                      Outstanding Cenovus SARs                          Exercisable Cenovus SARs
                                                                                            Weighted
                                                                                              Average            Weighted                                  Weighted
                                                                                           Remaining              Average                                   Average
                                                                         Number of        Contractual            Exercise            Number of             Exercise
      Range of Exercise Price (C$)                                           SARs          Life (years)             Price                SARs                 Price
      20.00 to 29.99                                                     1,034,146                3.11              26.28              303,813                26.25
      30.00 to 39.99                                                       992,015                2.26              33.54              596,412                33.54
      40.00 to 49.99                                                       132,350                2.44              43.44               79,410                43.44
                                                                         2,158,511                2.68              30.67              979,635                32.08

      During the year, the Company recorded net compensation costs of $2 million, which included a reduction of compensation costs of $3 million related to the
      new Encana SARs and compensation costs of $5 million related to the Cenovus SARs (2009 – compensation costs of $1 million related to the outstanding
      SARs	prior	to	the	Split	Transaction,	$2	million	related	to	the	new	Encana	SARs	and	$5	million	related	to	the	Cenovus	SARs;	2008	–	nil).




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d) PErFOrmanCE sHarE aPPrECiatiOn rigHts
In 2009, Encana granted Performance SARs to certain employees which entitle the employee to receive a cash payment equal to the excess of the market price
of Encana’s common shares at the time of exercise over the grant price. Performance SARs vest and expire under the same terms and service conditions as
SARs and are also subject to Encana attaining prescribed performance relative to predetermined key measures. Performance SARs that do not vest when
eligible are forfeited.

The following table summarizes information related to the Performance SARs prior to the November 30, 2009 Split Transaction (See Note 3):
As at December 31                                                                                   2010                                    2009
                                                                                                           Weighted                                Weighted
                                                                                   Outstanding              Average          Outstanding            Average
                                                                                  Performance              Exercise         Performance             Exercise
                                                                                         SARs                 Price                SARs                Price
Canadian Dollar Denominated (C$)
Outstanding, Beginning of Year                                                                –                   –	          1,620,930	               69.40
   Granted                                                                                    –                   –           2,140,440                55.31
   Forfeited                                                                                  –                   –	           (256,235)	              67.47
   Exchanged for new Performance SARs                                                         –                   –	         (3,505,135)	              60.94
Outstanding, End of Year                                                                      –                   –                     –                      –
Exercisable, End of Year                                                                      –                   –                     –                      –

The following tables summarize information related to the new Encana Performance SARs held by Encana employees:
As at December 31                                                                                   2010                                    2009
                                                                                                           Weighted                                Weighted
                                                                                   Outstanding              Average          Outstanding            Average
                                                                                  Performance              Exercise         Performance             Exercise
                                                                                         SARs                 Price                SARs                Price
Canadian Dollar Denominated (C$)
Outstanding, Beginning of Year                                                       3,471,998                32.00                    –                   –
   New Performance SARs exchanged November 30, 2009                                          –                    –	          3,481,203	               31.99
   Exercised                                                                           (52,173)               29.04                    –                   –
   Forfeited                                                                          (401,963)               32.26               (9,205)              29.97
Outstanding, End of Year                                                             3,017,862                32.01	          3,471,998	               32.00
Exercisable, End of Year                                                             1,060,938                33.41	            293,344	               36.44

                                                                                Outstanding Encana                                Exercisable Encana
As at December 31, 2010                                                         Performance SARs                                  Performance SARs
                                                                                      Weighted
                                                                                        Average            Weighted                                Weighted
                                                                                     Remaining              Average                                 Average
                                                                  Number of         Contractual            Exercise          Number of             Exercise
Range of Exercise Price (C$)                                          SARs           Life (years)             Price              SARs                 Price
20.00 to 29.99                                                     1,806,183               3.12               29.04             434,645                29.04
30.00 to 39.99                                                     1,211,679               2.12               36.44             626,293                36.44
                                                                   3,017,862               2.72               32.01           1,060,938                33.41




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      The following tables summarize information related to the Cenovus Performance SARs held by Encana employees:

      As at December 31                                                                                   2010                                     2009
                                                                                                                 Weighted                                 Weighted
                                                                                         Outstanding              Average          Outstanding             Average
                                                                                        Performance              Exercise         Performance              Exercise
                                                                                               SARs                 Price                SARs                 Price
      Canadian Dollar Denominated (C$)
      Outstanding, Beginning of Year                                                       3,471,998                28.94                    –                   –
         New Performance SARs exchanged November 30, 2009                                          –                    –           3,481,203	               28.94
         Exercised                                                                           (64,173)               26.27                    –                   –
         Forfeited                                                                          (401,827)               29.20               (9,205)              27.11
      Outstanding, End of Year                                                             3,005,998                28.96	          3,471,998	               28.94
      Exercisable, End of Year                                                             1,050,358                30.26	            293,344	               32.96

                                                                                     Outstanding Cenovus                                 Exercisable Cenovus
      As at December 31, 2010                                                         Performance SARs                                    Performance SARs
                                                                                            Weighted
                                                                                              Average            Weighted                                 Weighted
                                                                                           Remaining              Average                                  Average
                                                                        Number of         Contractual            Exercise           Number of             Exercise
      Range of Exercise Price (C$)                                          SARs           Life (years)             Price               SARs                 Price
      20.00 to 29.99                                                     1,795,147               3.12               26.27             424,493                26.27
      30.00 to 39.99                                                     1,210,851               2.12               32.96             625,865                32.96
                                                                         3,005,998               2.72               28.96           1,050,358                30.26

      During the year, the Company recorded net compensation costs of $2 million, which included a reduction of compensation costs of $4 million related to the new
      Encana	Performance	SARs	and	compensation	costs	of	$6	million	related	to	the	Cenovus	Performance	SARs	(2009	–	compensation	costs	of	$1	million	related	to	
      the outstanding Performance SARs prior to the Split Transaction, $3 million related to the new Encana Performance SARs and $7 million related to the Cenovus
      Performance	SARs;	2008	–	nil).

      E) PErFOrmanCE sHarE units
      In February 2010, PSUs were granted to eligible employees which entitle the employees to receive, upon vesting, a cash payment equal to the value of one
      common share of Encana for each PSU held, depending upon the terms of the amended PSU plan. PSUs vest three years from the date of grant, provided the
      employee remains actively employed with Encana on the vesting date.

      The ultimate value of the PSUs will depend upon Encana’s performance measured over the three-year period. Each year, Encana’s performance will be assessed
      by the Board of Directors (the “Board”) to determine whether the performance criteria have been met. Based on this assessment, up to a maximum of two times
      the original PSU grant may be awarded in respect of the year being measured. The respective proportion of the original PSU grant deemed eligible to vest for
      each year will be valued, based on an average share price over the last 20 trading days of the year for which performance is measured, and the notional cash
      value deposited to a PSU account, with payout deferred to the final vesting date.

      The following table summarizes information related to the PSUs:
                                                                                                                      Canadian Dollar                   U.S. Dollar
                                                                                                                         Denominated                 Denominated
      As at December 31, 2010                                                                                        Outstanding PSUs            Outstanding PSUs
       Outstanding, Beginning of Year                                                                                                –                           –
         Granted                                                                                                               880,735                     810,910
         Units, in Lieu of Dividends                                                                                            23,002                      21,082
         Forfeited                                                                                                             (28,556)                    (36,080)
      Outstanding, End of Year                                                                                                 875,181                     795,912

      During	the	year,	the	Company	recorded	compensation	costs	of	$15	million	related	to	the	outstanding	PSUs	(2009	–	nil;	2008	–	$1	million).

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F) dEFErrEd sHarE units
The Company has in place a program whereby Directors and certain key employees are issued Deferred Share Units (“DSUs”), which vest immediately and are
equivalent in value to a common share of the Company. DSUs expire on December 15th of the year following the Director’s resignation or employee’s termination.

Employees have the option to convert either 25 or 50 percent of their annual High Performance Results (“HPR”) award into DSUs. The number of DSUs is based
on the value of the award divided by the closing value of Encana’s share price at the end of the performance period of the HPR award. DSUs vest immediately,
can be redeemed in accordance with the terms of the agreement and expire on December 15th of the year following the year of termination.

Pursuant to the Split Transaction, additional Encana DSUs were credited to employees, officers and Directors of Encana to compensate employees, officers
and Directors for the loss in value of the Encana common shares. The number of Encana DSUs credited to each was determined so that, immediately after the
adjustment, each participant has an aggregate number of Encana DSUs based on a formula that the Encana DSUs fair value would equal the fair value of the
exchanged Encana DSUs. Encana DSUs credited to employees, officers and Directors of Cenovus were exchanged for Cenovus DSUs, each having a notional value
equal to the value of one Cenovus common share.

The following table summarizes information related to the DSUs:
As at December 31                                                                                                                          2010                    2009
                                                                                                                                   Outstanding            Outstanding
                                                                                                                                         DSUs                   DSUs
Canadian Dollar Denominated
Outstanding, Beginning of Year                                                                                                         672,147	             	656,841
   Granted                                                                                                                             104,477	             	 74,600
   Converted from HPR awards                                                                                                            21,732	             	 46,884
   Encana DSUs exchanged for Cenovus DSUs                                                                                                    –	             (
                                                                                                                                                            	367,293)
   Encana DSU credit adjustment                                                                                                              –                321,375
   Units, in Lieu of Dividends                                                                                                          20,338                 22,749
   Redeemed                                                                                                                           (101,801)	            	 (83,009)
Outstanding, End of Year                                                                                                               716,893	             	672,147

During	the	year,	the	Company	did	not	record	any	compensation	costs	related	to	the	outstanding	DSUs	(2009	–	$8	million;	2008	–	$2	million).

g) PEnsiOns and OtHEr POst-EmPlOymEnt bEnEFits
The Company sponsors defined benefit and defined contribution plans, providing pension and other post-employment benefits (“OPEB”) to its employees. In
the past, the defined benefit plan was offered; however, it has been closed to new entrants since January 1, 2003. The average remaining service period of the
active employees covered by the defined benefit pension plan is six years. The average remaining service period of the active employees covered by the OPEB
plan is 10 years.

The Company is required to file an actuarial valuation of its pension plans with the provincial regulator at least every three years. The most recent filing was dated
November 30, 2009 and the next required filing will be as at December 31, 2012.

Information related to defined benefit pension and other post-employment benefit plans, based on actuarial estimations as at December 31, 2010 is as follows:

                                                                                                          Pension Benefits                                OPEB
As at December 31                                                                                      2010           2009                    2010                 2009
Fair Value of Plan Assets, End of Year                                                             $    276       $     251               $        –        $            –
Accrued Benefit Obligation, End of Year                                                                 313             277                       82	       	           62
Funded Status – Plan Assets (less) than Benefit Obligation                                               (37)	    	      (26)	            	       (82)	     	          (62)
Amounts Not Recognized:
   Unamortized net actuarial (gain) loss                                                                  71             59                         8                     1
   Unamortized past service costs                                                                          1              2                         1                     1
   Net transitional asset (liability)                                                                      –              –                         3                     5
Accrued Benefit Asset (Liability)                                                                  $      35      $      35               $       (70)      $          (55)




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      The 2010 pension benefit obligation was determined using the weighted average discount rate of 5.00 percent (2009 – 5.75 percent) and a weighted average
      rate of compensation increase of 4.15 percent (2009 – 4.15 percent). The 2010 OPEB obligation was determined using the weighted average discount rate of
      5.10	percent	(2009	–	5.93	percent)	and	a	weighted	average	rate	of	compensation	increase	of	6.33	percent	(2009	–	6.31	percent).	

      In 2009, accrued benefit obligation and plan assets of $50 million were allocated in conjunction with the Split Transaction for active employees who are
      with Cenovus.

      The periodic pension and OPEB expense is as follows:

                                                                                        Pension Benefits                                               OPEB
      For the years ended December 31                                         2010	       	    2009	       	    2008	            	   2010	        	     2009	     	    2008
      Defined Benefit Plans Expense                                       $      12       $      20        $       9             $      15        $          14   $      12
      Defined Contribution Plans Expense                                         34              43               44                     –                    –           –
      Total Benefit Plans Expense                                         $      46	      $	     63	       $	     53	            $      15        $          14   $      12

      The Company’s pension plan assets were invested in the following as at December 31, 2010: 41 percent Domestic Equity (2009 – 39 percent), 23 percent
      Foreign Equity (2009 – 23 percent), 29 percent Bonds (2009 – 29 percent), and 7 percent Real Estate and Other (2009 – 9 percent). The expected long-term
      rate	of	return	is	6.75	percent.	The	expected	rate	of	return	on	plan	assets	is	based	on	historical	and	projected	rates	of	return	for	each	asset	class	in	the	plan	
      investment portfolio. The asset allocation structure is subject to diversification requirements and constraints, which reduce risk by limiting exposure to individual
      equity investment, credit rating categories and foreign currency exposure.

      The Company’s contributions to the defined benefit pension plans are subject to the results of an actuarial valuation and direction by the Human Resources and
      Compensation Committee. Contributions by the participants to the pension and other benefits plans were $0.3 million for the year ended December 31, 2010
      (2009	–	$1	million;	2008	–	$1	million).	Encana’s	contribution	to	the	defined	benefit	pension	plans	for	the	year	ended	December	31,	2010	was	$10	million	(2009	
      –	$12	million;	2008	–	$8	million).

      The Company’s OPEB plans are funded on an as required basis.

      Estimated future payments of pension and other benefits are as follows:
                                                                                                                                     Pension Benefits                  OPEB
      2011	                                                                                                                                  $	        18	        $	      3
      2012                                                                                                                                             19                 3
      2013                                                                                                                                             19                 4
      2014                                                                                                                                             20                 5
      2015                                                                                                                                             21                 5
      2016	–	2020	                                                                                                                           	        107	        	      34
      Total                                                                                                                                  $        204         $      54


      17. Financial instruments anD risk management

      Encana’s financial assets and liabilities include cash and cash equivalents, accounts receivable and accrued revenues, investments and other assets, accounts
      payable and accrued liabilities, risk management assets and liabilities, and long-term debt. Risk management assets and liabilities arise from the use of derivative
      financial instruments. Fair values of financial assets and liabilities, summarized information related to risk management positions, and discussion of risks
      associated with financial assets and liabilities are presented as follows:

      a) Fair valuE OF FinanCial assEts and liabilitiEs
      The fair values of cash and cash equivalents, accounts receivable and accrued revenues, and accounts payable and accrued liabilities approximate their carrying
      amount due to the short-term maturity of those instruments except for the amounts associated with share units issued as part of the Split Transaction, as
      discussed	in	Notes	15	and	16.

      Risk management assets and liabilities are recorded at their estimated fair value using quoted market prices or, in their absence, third-party market indications
      and forecasts.

      The fair value of investments and other assets approximate their carrying amount due to the nature of the instruments held.



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Long-term debt is carried at amortized cost using the effective interest method of amortization. The estimated fair values of long-term borrowings have been
determined based on market information where available, or by discounting future payments of interest and principal at estimated interest rates expected to be
available to the Company at period end.

The fair value of financial assets and liabilities were as follows:
As at December 31                                                                                                                   2010                                 2009
                                                                                                                        Carrying                Fair          Carrying                  Fair
                                                                                                                         Amount                Value          Amount                   Value
Financial Assets
    Held-for-Trading:
       Cash and cash equivalents                                                                                        $     629          $     629      $ 4,275               $ 4,275
       Accounts receivable and accrued revenues (1)                                                                            27                 27           75                    75
       Risk management assets (2)                                                                                           1,234              1,234	     	   360	              	   360
       Investments and other assets                                                                                            86                 86            –                     –
    Loans and Receivables:
       Accounts receivable and accrued revenues                                                                             1,076              1,076            1,105                 1,105
Financial Liabilities
    Held-for-Trading:
       Accounts payable and accrued liabilities (3, 4)                                                                  $    147           $    147       $       155           $        155
       Risk management liabilities (2)                                                                                        73                 73	      	       168	          	        168
    Other Financial Liabilities:
       Accounts payable and accrued liabilities                                                                             2,064              2,064	     	     1,988	          	     1,988
       Long-term debt (2)                                                                                                   7,629              8,488	     	     7,768	          	     8,527
(1) Represents amounts due from Cenovus for Encana share units held by Cenovus employees as discussed in Note 15.
(2) Including current portion.
(3) Includes amounts due to Cenovus employees for Encana share units held as discussed in Note 15.
(4)	Includes	amounts	due	to	Cenovus	for	Cenovus	share	units	held	by	Encana	employees	as	discussed	in	Notes	15	and	16.


b) risk managEmEnt assEts and liabilitiEs

NEt RISk MANAGEMENt POSItION
As at December 31                                                                                                                                               2010                   2009
Risk Management
    Current asset                                                                                                                                         $       729	          $	       328
    Long-term asset                                                                                                                                               505                     32
                                                                                                                                                                1,234	          	        360

Risk Management
    Current liability                                                                                                                                              65	          	        126
    Long-term liability                                                                                                                                             8                     42
                                                                                                                                                                   73	          	        168
Net Risk Management Asset                                                                                                                                 $ 1,161               $        192




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      SUMMARy OF UNREALIzED RISk MANAGEMENt POSItIONS
      As at December 31                                                                                  2010                                                          2009
                                                                                                Risk Management                                                Risk Management
                                                                                       Asset          Liability              Net                      Asset          Liability             Net
      Commodity Prices
         Natural gas                                                               $ 1,234           $      63        $ 1,171	                   $	    298	       $	      88	       $	     210
         Crude oil                                                                       –                   –              –	                   	      62	       	       72	       	      (10)
         Power                                                                           –                  10            (10)	                  	       –	       	        8	       	        (8)
      Total Fair Value                                                             $ 1,234           $      73        $ 1,161	                   $	    360	       $	     168	       $	     192


      NEt FAIR VALUE MEthODOLOGIES USED tO CALCULAtE UNREALIzED RISk MANAGEMENt POSItIONS
      The	total	net	fair	value	of	Encana’s	unrealized	risk	management	positions	is	$1,161	million	as	at	December	31,	2010	($192	million	as	at	December	31,	2009)	
      and has been calculated using both quoted prices in active markets and observable market-corroborated data.

      NEt FAIR VALUE OF COMMODIty PRICE POSItIONS At DECEMBER 31, 2010
                                                                                                         Notional Volumes                    Term        Average Price             Fair Value
      Natural Gas Contracts
      Fixed Price Contracts
      		 NYMEX	Fixed	Price	                                                                                 1,438	MMcf/d	                    2011	       5.98	US$/Mcf	             $       745
      		 NYMEX	Fixed	Price	                                                                                 1,125	MMcf/d	                    2012	       6.36	US$/Mcf	                     522

      Basis Contracts *
         Canada                                                                                                                           2011                                             (15)
         United States                                                                                                                    2011                                             (51)
         Canada and United States                                                                                                    2012-2013                                             (21)
                                                                                                                                                                                         1,180
      Other Financial Positions **                                                                                                                                                           (9)
      Natural Gas Fair Value Position                                                                                                                                                    1,171

      Power Purchase Contracts
      Power Fair Value Position                                                                                                                                                            (10)
      Total Fair Value                                                                                                                                                             $     1,161
      * Encana has entered into swaps to protect against widening natural gas price differentials between production areas, including Canada, the U.S. Rockies and Texas, and various sales points.
        These basis swaps are priced using both fixed prices and basis prices determined as a percentage of NYMEX.
      ** Other financial positions are part of the ongoing operations of the Company’s proprietary production management.




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EARNINGS IMPACt OF REALIzED AND UNREALIzED GAINS (LOSSES) ON RISk MANAGEMENt POSItIONS
                                                                                                                                          Realized Gain (Loss)
For the years ended December 31                                                                                            2010	                    2009	                2008
Revenues, Net of Royalties                                                                                           $ 1,207                  $ 4,420             $       (309)
Operating Expenses and Other                                                                                              (4)	                	    (44)	          	         28
Gain (Loss) on Risk Management                                                                                       $ 1,203	                 $	 4,376	           $	      (281)

                                                                                                                                         Unrealized Gain (Loss)
For the years ended December 31                                                                                            2010                     2009	                2008
Revenues, Net of Royalties                                                                                           $        947	            $	 (2,640)	         $	 2,717
Operating Expenses and Other                                                                                                   (2)                   (40)               12
Gain (Loss) on Risk Management                                                                                       $        945	            $	 (2,680)	         $	 2,729


RECONCILIAtION OF UNREALIzED RISk MANAGEMENt POSItIONS FROM JANUARy 1 tO DECEMBER 31, 2010
                                                                                                                   2010	                                2009	            2008
                                                                                                                               Total                     Total         Total
                                                                                                                         Unrealized                Unrealized    Unrealized
                                                                                                      Fair Value         Gain (Loss)               Gain (Loss)   Gain (Loss)
Fair Value of Contracts, Beginning of Year                                                             $     192
Change in Fair Value of Contracts in Place at Beginning of Year
    and Contracts Entered into During the Year                                                              2,148         $ 2,148	                 $	 1,696	      $	 2,448
Settlement of Contracts Transferred to Cenovus                                                                 24                –                        –              –
Fair Value of Contracts Realized During the Year                                                           (1,203)          (1,203)	               	 (4,376)	     	    281
Fair Value of Contracts, End of Year                                                                   $ 1,161            $      945	              $	 (2,680)	    $	 2,729


COMMODIty PRICE SENSItIVItIES
The following table summarizes the sensitivity of the fair value of the Company’s risk management positions to fluctuations in commodity prices, with all other
variables held constant. The Company has used a 10 percent variability to assess the potential impact of commodity price changes. Fluctuations in commodity
prices could have resulted in unrealized gains (losses) impacting pre-tax net earnings as at December 31, 2010 as follows:

                                                                                                                     10% Price Increase               10% Price Decrease
Natural gas price                                                                                                                    $     (447)                  $        447
Power price                                                                                                                                  10                            (10)


C) risks assOCiatEd witH FinanCial assEts and liabilitiEs
The Company is exposed to financial risks arising from its financial assets and liabilities. Financial risks include market risks (such as commodity prices, foreign
exchange and interest rates), credit risk and liquidity risk. The fair value or future cash flows of financial assets or liabilities may fluctuate due to movement in
market prices and the exposure to credit and liquidity risks.

COMMODIty PRICE RISk
Commodity price risk arises from the effect that fluctuations of future commodity prices may have on the fair value or future cash flows of financial assets and
liabilities. To partially mitigate exposure to commodity price risk, the Company has entered into various financial derivative instruments. The use of these
derivative instruments is governed under formal policies and is subject to limits established by the Board. The Company’s policy is to not use derivative financial
instruments for speculative purposes.

Natural Gas – To partially mitigate the natural gas commodity price risk, the Company has entered into swaps which fix the NYMEX prices. To help protect against
widening natural gas price differentials in various production areas, Encana has entered into swaps to manage the price differentials between these production
areas and various sales points.

Power – The Company has in place two Canadian dollar denominated derivative contracts, which commenced January 1, 2007 for a period of 11 years, to
manage its electricity consumption costs.

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      CREDIt RISk
      Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with
      agreed terms. This credit risk exposure is mitigated through the use of Board-approved credit policies governing the Company’s credit portfolio and with credit
      practices that limit transactions according to counterparties’ credit quality. At December 31, 2010, cash equivalents include high-grade, short-term securities,
      placed primarily with governments and financial institutions with strong investment grade ratings. Any foreign currency agreements entered into are with major
      financial institutions in Canada and the United States or with counterparties having investment grade credit ratings.

      A substantial portion of the Company’s accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risks. As at
      December 31, 2010, approximately 94 percent (2009 – 93 percent) of Encana’s accounts receivable and financial derivative credit exposures are with investment
      grade counterparties.

      At December 31, 2010, Encana had four counterparties (2009 – two counterparties) whose net settlement position individually account for more than 10 percent
      of the fair value of the outstanding in-the-money net financial instrument contracts by counterparty. The maximum credit risk exposure associated with accounts
      receivable and accrued revenues and risk management assets is the total carrying value.

      LIQUIDIty RISk
      Liquidity risk is the risk the Company will encounter difficulties in meeting a demand to fund its financial liabilities as they come due. The Company manages its
      liquidity risk through cash and debt management. Encana targets a Debt to Capitalization ratio of less than 40 percent and a Debt to Adjusted EBITDA of less than
      2.0 times to steward the Company’s overall debt position. Further information on Encana’s Debt to Capitalization ratio and Debt to Adjusted EBITDA calculation is
      contained in Note 14.

      In managing liquidity risk, the Company has access to cash equivalents and a wide range of funding at competitive rates through commercial paper, capital
      markets and banks. As at December 31, 2010, Encana had available unused committed bank credit facilities totaling $5.1 billion which include a C$4.5 billion
      ($4.5	billion)	revolving	bank	credit	facility	and	a	U.S.	subsidiary	revolving	bank	credit	facility	for	$565	million	that	remain	committed	through	October	2012	and	
      February 2013, respectively.

      Encana	also	had	unused	capacity	under	two	shelf	prospectuses	for	up	to	$6.0	billion,	the	availability	of	which	is	dependent	on	market	conditions,	to	issue	up	to	
      C$2.0 billion ($2.0 billion) of debt securities in Canada and up to $4.0 billion of debt securities in the United States. These shelf prospectuses expire in June
      2011 and May 2012, respectively. The Company believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements.

      The timing of cash outflows relating to financial liabilities are outlined in the table below:

                                                                Less than
      	      	                                                     1	Year	        1	–	3	Years	         4	–	5	Years	   6	–	9	Years	         Thereafter	              Total
      Accounts Payable and Accrued Liabilities                 $    2,211          $        –           $       –      $        –          $       –          $  2,211
      Risk	Management	Liabilities	                             	       65	         	        8	          	       –	     	        –	         	       –	               73
      Long-Term	Debt	*	                                        	      973	         	    1,853	          	   1,705	     	    3,141	         	   6,502	         	 14,174
      * Principal and interest, including current portion.

      Encana’s total long-term debt obligations were $14.2 billion at December 31, 2010. Further information on long-term debt is contained in Note 12.




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FOREIGN ExChANGE RISk
Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of the Company’s financial assets or
liabilities. As Encana operates primarily in North America, fluctuations in the exchange rate between the U.S./Canadian dollar can have a significant effect on
the Company’s reported results. Encana’s functional currency is Canadian dollars; however, the Company reports its results in U.S. dollars as most of its revenue
is closely tied to the U.S. dollar and to facilitate a more direct comparison to other North American oil and gas companies. As the effects of foreign exchange
fluctuations are embedded in the Company’s results, the total effect of foreign exchange fluctuations is not separately identifiable.

To mitigate the exposure to the fluctuating U.S./Canadian dollar exchange rate, Encana maintains a mix of both U.S. dollar and Canadian dollar debt. As at
December	31,	2010,	Encana	had	$5.4	billion	in	U.S.	dollar	debt	issued	from	Canada	subject	to	foreign	exchange	exposure	($5.6	billion	at	December	31,	2009)	
and $2.3 billion in debt that was not subject to foreign exchange exposure ($2.2 billion at December 31, 2009).

Encana’s foreign exchange (gain) loss primarily includes foreign exchange gains and losses on U.S. dollar cash and short-term investments held in Canada,
unrealized foreign exchange gains and losses on the translation of U.S. dollar debt issued from Canada, unrealized foreign exchange gains and losses on the
translation of U.S. dollar denominated risk management assets and liabilities held in Canada and, in the prior year, foreign exchange gains and losses on the
translation of the U.S. dollar partnership contribution receivable issued from Canada. A $0.01 change in the U.S. to Canadian dollar exchange rate would have
resulted in a $49 million change in foreign exchange (gain) loss at December 31, 2010 (2009 – $21 million).

INtERESt RAtE RISk
Interest rate risk arises from changes in market interest rates that may affect the fair value or future cash flows from the Company’s financial assets or liabilities.
The Company may partially mitigate its exposure to interest rate changes by holding a mix of both fixed and floating rate debt.

At December 31, 2010, the Company had no floating rate debt. Accordingly, the sensitivity in net earnings for each one percent change in interest rates on
floating rate debt was nil (2009 – nil).

18. supplementary inFormation


a) nEt CHangE in nOn-CasH wOrking CaPital FrOm COntinuing OPEratiOns
For the years ended December 31                                                                                         2010	               2009	                 2008
Operating Activities
   Accounts receivable and accrued revenues                                                                        $      190	         $	  (487)	          $	   452
   Inventories                                                                                                              6              (271)                211
   Accounts payable and accrued liabilities                                                                               (50)	        	    567	           	   (354)
   Income tax payable                                                                                                  (2,136)	        	 1,237	            	   (589)
   Discontinued operations                                                                                                  –            (1,075)             (1,073)
                                                                                                                   $ (1,990)           $      (29)         $ (1,353)

Investing Activities
   Accounts payable and accrued liabilities                                                                        $      (26)         $      (50)         $           34


b) suPPlEmEntary CasH FlOw inFOrmatiOn – COntinuing OPEratiOns
For the years ended December 31                                                                                         2010	               2009	                 2008
Interest Paid                                                                                                      $   507             $     507           $    543
Income Taxes Paid                                                                                                  $ 2,024	            $	    766	          $	 1,574




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      19. commitments anD contingencies


      COmmitmEnts
      As at December 31, 2010                                                  2011              2012              2013              2014             2015        Thereafter               Total
      Pipeline	Transportation	and	Processing	                             $	     687	       $	     722	       $	    763	        $	    767	       $	     726	     $	    3,416         $    7,081
      Purchases of Goods and Services (1)	                                	      974	       	      353	       	     211	        	     161	       	      141	     	       400	             2,240
      Office Rent (2)	                                                    	       81	       	      188	       	     195	        	     191	       	      185	     	     3,206	        	    4,046
      Capital	Commitments	                                                	      199	       	      120	       	       –	        	       –	       	        –	     	        38	        	      357
      Total	                                                              $	 1,941	         $	 1,383	         $	 1,169	         $	 1,119	        $	 1,052	       $	    7,060	        $ 13,724

      Cenovus’s Share of Costs (3)	                                       $	     119	       $	     142	       $	      82	       $	      80	      $	      76	     $	    1,528	        $    2,027
      (1)	Includes	a	commitment	of	$667	million	related	to	the	PFC	for	the	Deep	Panuke	project	currently	recorded	as	an	asset	under	construction	(See	Note	4).	This	is	expected	to	be	recorded	
          as an eight year capital lease upon commencement of operations.
      (2) Primarily related to the lease of office space associated with The Bow. Tenant improvements for The Bow are included under Capital Commitments.
      (3) Tenant costs associated with The Bow as well as current office space lease arrangements remain with Encana. Cenovus and Encana have entered into an agreement to share in the costs.


      In addition to the above, the Company has made commitments related to its risk management program (See Note 17).

      COntingEnCiEs
      LEGAL PROCEEDINGS
      The Company is involved in various legal claims associated with the normal course of operations. The Company believes it has made adequate provision for
      such legal claims.

      ASSEt REtIREMENt
      Encana is responsible for the retirement of long-lived assets related to its oil and gas properties and Midstream facilities at the end of their useful lives. The
      Company	has	recognized	a	liability	of	$820	million	based	on	current	legislation	and	estimated	costs.	Actual	costs	may	differ	from	those	estimated	due	to	
      changes in legislation and changes in costs.

      INCOME tAx MAttERS
      The operations of the Company are complex, and related tax interpretations, regulations and legislation in the various jurisdictions in which Encana operates
      are continually changing. As a result, there are usually some tax matters under review. The Company believes that the provision for taxes is adequate.

      20. subsequent events

      On February 9, 2011, Encana announced the signing of a Co-operation Agreement with PetroChina International Investment Company Limited, a subsidiary of
      PetroChina Company Limited, that would see PetroChina pay C$5.4 billion to acquire a 50 percent interest in Encana’s Cutbank Ridge business assets in British
      Columbia and Alberta. Under the Co-operation Agreement, the two companies would establish a 50/50 joint venture to develop the assets.

      The transaction is subject to regulatory approval from Canadian and Chinese authorities, due diligence and the negotiation and execution of various transaction
      agreements, including the joint venture agreement. Financial impacts will be determined at the time the negotiations are complete.




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21. uniteD states accounting principles anD reporting

The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”) which, in
most respects, conform to accounting principles generally accepted in the United States (“U.S. GAAP”). The significant differences between Canadian GAAP and
U.S. GAAP are described in this note.

rECOnCiliatiOn OF nEt Earnings undEr Canadian gaaP tO u.s. gaaP
For the years ended December 31                                                                        Note             2010	     	     2009	     	      2008
Net Earnings – Canadian GAAP                                                                                       $   1,499	     $	 1,862	       $	 5,944
Less:
Net Earnings From Discontinued Operations – Canadian GAAP                                                                   –              32             (555)
Net Earnings From Continuing Operations – Canadian GAAP                                                                1,499	     	    1,830	     	     6,499

Increase (Decrease) in Net Earnings From Continuing Operations Under U.S. GAAP:
    Revenues, net of royalties                                                                                             –               –                  –
    Operating                                                                                        D ii), H             (7)	    	      (16)	    	        (46)
    Depreciation, depletion and amortization                                                         B, D ii)          1,234	     	 (10,926)	     	    (1,755)
    Administrative                                                                                      D ii)             (3)             22               (27)
    Interest, net                                                                                          A               –               –                 (3)
    Foreign exchange (gain) loss, net                                                                      G              35	     	     128	      	           –
    Stock-Based compensation – options                                                                     C               –               –                  2
    Income tax expense (recovery)                                                                          E            (415)	    	 3,378	        	       695
Net Earnings (Loss) From Continuing Operations – U.S. GAAP                                                             2,343	     	    (5,584)	   	     5,365
Net Earnings (Loss) From Discontinued Operations – U.S. GAAP                                                               –               32            (555)
Net Earnings (Loss) – U.S. GAAP                                                                                    $   2,343	     $	 (5,552)	     $	 4,810

Net Earnings (Loss) From Continuing Operations per Common Share
    Basic                                                                                                          $    3.17      $     (7.44)    $       7.15
    Diluted                                                                                                        $    3.17      $     (7.44)    $       7.14
Net Earnings (Loss) per Common Share
    Basic                                                                                                          $    3.17	     $	    (7.39)	   $	      6.41
    Diluted                                                                                                        $    3.17	     $	    (7.39)	   $	      6.40




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      COnsOlidatEd statEmEnt OF Earnings – u.s. gaaP
      For the years ended December 31                                                         Note         2010	    	     2009	     	    2008
      Revenues, Net of Royalties                                                                       $   8,870    $ 11,114        $ 21,053
      Expenses
         Production and mineral taxes                                                                        217	   	    171	       	      478
         Transportation                                                                                      859	   	 1,280	        	    1,704
         Operating                                                                         D ii), H        1,068	   	 1,643	        	    2,029
         Purchased product                                                                                   739	   	 1,460	        	    2,426
         Depreciation, depletion and amortization                                           B, D ii)       2,008	   	 14,630	       	    5,790
         Administrative                                                                        D ii)         362         455               474
         Interest, net                                                                            A          501         405               405
         Accretion of asset retirement obligation                                                             46          71                77
         Foreign exchange (gain) loss, net                                                        G         (251)       (150)              423
         Stock-Based compensation – options                                                       C            –           –                 (2)
         (Gain) loss on divestitures                                                                           2           2              (141)
      Net Earnings (Loss) Before Income Tax                                                                3,319	   	    (8,853)	   	    7,390
          Income tax expense (recovery)                                                           E          976	   	    (3,269)	   	    2,025
      Net Earnings (Loss) From Continuing Operations – U.S. GAAP                                           2,343	   	    (5,584)	   	    5,365
      Net Earnings (Loss) From Discontinued Operations – U.S. GAAP                                             –             32           (555)
      Net Earnings (Loss) – U.S. GAAP                                                                  $   2,343	   $	 (5,552)	     $	 4,810

      Net Earnings (Loss) From Continuing Operations per Common Share – U.S. GAAP
          Basic                                                                                        $    3.17    $     (7.44)    $     7.15
          Diluted                                                                                      $    3.17    $     (7.44)    $     7.14
      Net Earnings (Loss) From Discontinued Operations per Common Share – U.S. GAAP
          Basic                                                                                        $       –    $     0.05      $    (0.74)
          Diluted                                                                                      $       –    $     0.05      $    (0.74)
      Net Earnings (Loss) per Common Share – U.S. GAAP
          Basic                                                                                        $    3.17	   $	    (7.39)	   $	    6.41
          Diluted                                                                                      $    3.17	   $	    (7.39)	   $	    6.40


      COnsOlidatEd statEmEnt OF COmPrEHEnsivE inCOmE – u.s. gaaP
      For the years ended December 31                                                         Note         2010	    	     2009	     	    2008
      Net Earnings (Loss) – U.S. GAAP                                                                  $   2,343	   $	 (5,552)	     $	 4,810
      Change in Fair Value of Financial Instruments                                               A            –            –                2
      Foreign Currency Translation Adjustment                                         B, D ii), F, G         226        1,970          (2,217)
      Compensation Plans                                                                    D i), F           (2)          13              (12)
      Comprehensive Income (Loss)                                                                      $   2,567	   $	 (3,569)	     $	 2,583


      COnsOlidatEd statEmEnt OF aCCumulatEd OtHEr COmPrEHEnsivE inCOmE – u.s. gaaP
      For the years ended December 31                                                         Note         2010	    	     2009	     	    2008
      Balance, Beginning of Year                                                                       $    698	    $	      811	    $	 3,038
      Change in Fair Value of Financial Instruments                                               A           –               –              2
      Foreign Currency Translation Adjustment                                         B, D ii), F, G        226           1,970        (2,217)
      Compensation Plans                                                                    D i), F          (2)             13            (12)
      Net Distribution to Cenovus Energy                                                                      –	    	    (2,096)	   	        –
      Balance, End of Year                                                                             $    922	    $	     698	     $	     811




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COnsOlidatEd statEmEnt OF rEtainEd Earnings – u.s. gaaP
For the years ended December 31                                                                                                    2010	     	    2009	       	     2008
Retained Earnings, Beginning of Year                                                                                           $   4,804	    $	 16,344	       $	 12,976
Net Earnings (Loss)                                                                                                                2,343	    	 (5,552)	       	 4,810
Dividends on Common Shares                                                                                                          (590)        (1,051)         (1,199)
Charges for Normal Course Issuer Bid                                                                                                (445)             –            (243)
Net Distribution to Cenovus Energy                                                                                                     –         (4,937)              –
Retained Earnings, End of Year                                                                                                 $   6,112	    $	 4,804	        $	 16,344


COndEnsEd COnsOlidatEd balanCE sHEEt – u.s. gaaP
As at December 31                                                                                                  2010                                2009
                                                                                          Note          As Reported    U.S. GAAP            As Reported       U.S. GAAP
Assets
Current Assets                                                                           D i), H          $    2,854      $    2,807         $    5,795       $    5,750
Property, Plant and Equipment                                                           B, D ii)
   (includes unproved properties and major development projects of $3,030
	 and	$3,128	as	of	December	31,	2010	and	2009,	respectively)	                                       	     	 51,959             51,848           45,503           45,393
   Accumulated Depreciation, Depletion and Amortization                                                     (23,258)          (34,655)	      	 (19,330)	      	 (31,738)
    Property, Plant and Equipment, net                                                                        28,701          17,193	        	 26,173	        	 13,655
    (Full Cost Method for Oil and Gas Activities)
Investments and Other Assets                                                                D i)                 235             200	        	      164	      	      119
Risk Management                                                                                                  505             505                 32               32
Goodwill                                                                                                       1,725           1,725	        	    1,663	      	    1,663
                                                                                                          $ 34,020        $ 22,430	          $	 33,827	       $	 21,219
Liabilities and Shareholders’ Equity
Current Liabilities                                                                  A, D i), ii)         $    2,776      $    3,093         $    4,245       $    4,530
Long-Term Debt                                                                                                 7,129           7,129	        	    7,568	      	    7,568
Other Liabilities                                                                    A, D i), ii)              1,730           1,781	        	    1,185	      	    1,220
Risk Management                                                                                                    8               8                 42               42
Asset Retirement Obligation                                                                                      820             820	        	      787	      	      787
Future Income Taxes                                                                            E               4,230             213	        	    3,386	      	     (829)
                                                                                                              16,693          13,044	        	 17,213	        	 13,318

Share Capital                                                                                  C
    Common shares, no par value                                                                                2,319           2,352	        	    2,360	      	    2,393
	 Outstanding:	2010	–	736.3	million	shares	                                                         	     	
                2009 – 751.3 million shares
Paid in Surplus                                                                                                    –               –	        	      6	        	        6
Retained Earnings                                                                                             13,957           6,112	        	 13,493	        	    4,804
Accumulated Other Comprehensive Income                                      A, B, D i), ii), F, G              1,051             922	        	    755	        	      698
                                                                                                              17,327           9,386	        	 16,614	        	    7,901
                                                                                                          $ 34,020        $ 22,430	          $	 33,827	       $	 21,219




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      COndEnsEd COnsOlidatEd statEmEnt OF CasH FlOws – u.s. gaaP
      For the years ended December 31                                                                                                  2010	      	    2009	     	     2008
      Operating Activities
         Net earnings (loss) from continuing operations                                                                           $    2,343	     $	 (5,584)	    $	    5,365
         Depreciation, depletion and amortization                                                                                      2,008	     	 14,630	      	     5,790
         Future income taxes                                                                                                           1,189	     	  (5,177)	    	     1,028
         Unrealized (gain) loss on risk management                                                                                      (945)	    	   2,680	     	    (2,729)
         Unrealized foreign exchange (gain) loss                                                                                        (313)          (359)             417
         Accretion of asset retirement obligation                                                                                         46             71               77
         (Gain) loss on divestitures                                                                                                       2              2             (141)
         Other                                                                                                                           109	     	     320	     	         (8)
         Cash flow from discontinued operations                                                                                            –            149             (441)
         Net change in other assets and liabilities                                                                                      (84)            23             (254)
         Net change in non-cash working capital from continuing operations                                                            (1,990)	    	      18	     	    (1,353)
         Net change in non-cash working capital from discontinued operations                                                               –          1,100            1,210

      Cash From Operating Activities                                                                                              $   2,365	      $	 7,873	      $	 8,961

      Cash (Used in) Investing Activities                                                                                         $ (4,729)	      $	 (4,806)	    $	 (7,517)

      Cash From (Used in) Financing Activities                                                                                    $ (1,284)	      $	    835	     $	 (1,439)


      Notes:
      A) DERIVAtIVE INStRUMENtS AND hEDGING
      On	January	1,	2004,	the	Company	implemented	under	Canadian	GAAP,	EIC	128	“Accounting For Trading, Speculative or Non-Hedging Derivative Financial
      Instruments”, which requires derivatives not designated as hedges to be recorded in the balance sheet as either assets or liabilities at their fair value. Changes in
      the derivative’s fair value are recognized in current period earnings. Under the transitional rules, any gain or loss at the implementation date is deferred and
      recognized into revenue once realized. Currently, Management has not designated any of the financial instruments as hedges.

      The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards for derivatives and hedging effective January 1, 2001. The standard
      requires that all derivatives be recorded in the balance sheet as either assets or liabilities at their fair value. Changes in the derivative’s fair value are recognized
      in current period earnings unless specific hedge accounting criteria are met. Management has currently not designated any of the financial instruments as
      hedges for U.S. GAAP purposes. Any gain or loss on implementation of this U.S. GAAP standard was recorded in OCI. These transitional amounts are recognized
      into net earnings as the positions are realized.

      Unrealized gain (loss) on derivatives relates to:
      For the years ended December 31                                                                                                  2010	      	    2009	     	     2008
      Commodity Prices (Revenues, net of royalties)                                                                               $     947	      $	 (2,640)	    $	 2,717
      Operating Expenses and Other                                                                                                       (2)             (40)          12
      Interest and Currency Swaps (Interest, net)                                                                                         –                –           (3)
      Total Unrealized Gain (Loss)                                                                                                $     945	      $	 (2,680)	    $	 2,726

      Amounts Allocated to Continuing Operations                                                                                  $     945	      $	 (2,680)	    $	 2,726
      Amounts Allocated to Discontinued Operations                                                                                        –               –             –
                                                                                                                                  $     945	      $	 (2,680)	    $	 2,726

      In	2008,	the	remaining	balance	that	was	related	to	the	transitional	amounts	in	AOCI	was	recognized	in	net	earnings	for	U.S.	GAAP.




122   Encana Corporation / Annual Report 2010
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B) FULL COSt ACCOUNtING
Under U.S. GAAP, a ceiling test is applied to ensure the unamortized capitalized costs in each cost centre do not exceed the sum, net of applicable income taxes,
of the present value, discounted at 10 percent, of the estimated future net revenues calculated on the basis of estimated value of future production from proved
reserves using an average price based upon the prior 12-month period, less related unescalated estimated future development and production costs, plus
unimpaired unproved property costs.

Under Canadian GAAP, a similar ceiling test calculation is performed with the exception that cash flows from proved reserves are undiscounted and utilize
forecast pricing and future development and production costs to determine whether impairment exists. The impairment amount is measured using the fair value
of proved and probable reserves. Depletion charges under Canadian GAAP are also calculated by reference to proved reserves estimated using estimated future
prices and costs.

At December 31, 2009, the Company’s capitalized costs of oil and gas properties exceeded the full cost ceiling resulting in a non-cash U.S. GAAP write-down of
$11.1	billion	charged	to	depreciation,	depletion	and	amortization	($7.6	billion	after-tax).	This	write-down	included	$6.3	billion	from	properties	in	the	United	States	
($4.0	billion	after-tax)	(2008	–	$1.8	billion	charged	to	depreciation,	depletion	and	amortization;	$1.1	billion	after-tax)	and	$4.8	billion	from	properties	in	Canada	
($3.6	billion	after-tax)	(2008	–	nil).	Additional	depletion	was	also	recorded	in	2001,	and	certain	prior	years,	as	a	result	of	the	ceiling	test	difference	between	
Canadian GAAP and U.S. GAAP. As a result, the depletion base of unamortized capitalized costs is less for U.S. GAAP purposes.

The U.S. GAAP adjustment for the difference in depletion calculations results in an impact to depreciation, depletion and amortization charges and foreign
currency	translation	adjustment	of	a	$1,235.8	million	decrease	and	a	$11.1	million	increase,	respectively	(2009	–	$171.8	million	decrease	and	$0.5	million	
decrease;	2008	–	$13.3	million	decrease	and	$0.8	million	increase).	

C) StOCk-BASED COMPENSAtION – CPL REORGANIzAtION
U.S. GAAP requires that compensation expense must be recorded if the intrinsic value of the stock options is not exactly the same immediately before and after
an equity restructuring. As part of the corporate reorganization of Canadian Pacific Limited (“CPL”), an equity restructuring occurred that resulted in CPL stock
options being replaced with stock options granted by Encana. This resulted in the replacement options having a different intrinsic value after the restructuring
than prior to the restructuring. Canadian GAAP does not require revaluation of these options.

D) COMPENSAtION PLANS

i) Pensions and Other Post-Employment Benefits
For	the	year	ended	December	31,	2006,	the	Company	adopted,	for	U.S.	GAAP	purposes,	the	standard	for	retirement	benefits.	The	standard	requires	Encana	to	
recognize the over-funded or under-funded status of defined benefit and post-employment plans on the balance sheet as an asset or liability and to recognize
changes in the funded status through OCI. Canadian GAAP does not require the Company to recognize the funded status of these plans on its balance sheet.

ii) Liability-Based Stock Compensation Plans
Under Canadian GAAP, obligations for liability-based stock compensation plans are recorded using the intrinsic-value method of accounting. For U.S. GAAP
purposes,	the	Company	adopted	the	standard	for	stock	compensation	for	the	year	ended	December	31,	2006	using	the	modified-prospective	approach.	Under	
the standard, the intrinsic-value method of accounting for liability-based stock compensation plans is no longer an alternative. Liability-based stock compensation
plans, including tandem share appreciation rights, performance tandem share appreciation rights, share appreciation rights, performance share appreciation
rights, performance share units, and deferred share units, are required to be re-measured at fair value at each reporting period up until the settlement date.

To the extent compensation cost relates to employees directly involved in natural gas and crude oil exploration and development activities, such amounts are
capitalized to property, plant and equipment. Amounts not capitalized are recognized as administrative expenses or operating expenses. The current period
adjustments have the following impact:

•	 Net	capital	assets	increased	by	$4.0	million	(2009	–	$56.4	million	decrease)

•	 Current	liabilities	increased	by	$16.9	million	(2009	–	$76.7	million	decrease)

•	 Other	liabilities	decreased	by	$0.7	million	(2009	–	$3.2	million	increase)

•	 Other	comprehensive	income	decreased	by	$0.3	million	(2009	–	$3.2	million	decrease)

•	 Operating	expenses	increased	by	$6.8	million	(2009	–	$31.5	million	decrease)

•	 Administrative	expenses	increased	by	$3.4	million	(2009	–	$21.8	million	decrease)

•	 Depreciation,	depletion	and	amortization	expenses	increased	by	$1.7	million	(2009	–	$0.8	million	decrease)	




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      E) INCOME tAxES
      The following differences result from the future income tax adjustments included in the Reconciliation of Net Earnings under Canadian GAAP to U.S. GAAP and
      the Condensed Consolidated Balance Sheet which include the effect of such rate differences, if any, as well as the tax effect of the other reconciling items noted.

      The following table provides a reconciliation of the statutory rate to the actual tax rate:
      For the years ended December 31                                                                                              2010	     	    2009	      	      2008
      Net Earnings (Loss) Before Income Tax – U.S. GAAP                                                                       $    3,319	    $	 (8,853)	     $	 7,390
      Canadian Statutory Rate                                                                                                     28.2%         29.2%           29.7%
      Expected Income Tax                                                                                                           936	     	   (2,585)	    	      2,191
      Effect on Taxes Resulting from:
          Statutory and other rate differences                                                                                      101	     	     (389)	    	          15
          Effect of tax rate changes                                                                                                 13                –                 –
          International financing                                                                                                   (78)	    	     (101)	    	       (268)
          Foreign exchange (gains) losses not included in net earnings                                                                6               20                47
          Non-taxable capital (gains) losses                                                                                        (38)	    	       (71)	   	          84
          Other                                                                                                                      36            (143)               (44)
      Income Tax – U.S. GAAP                                                                                                  $     976	     $	 (3,269)	     $	 2,025
      Effective Tax Rate                                                                                                          29.4 %	    	   36.9%	      	    27.4%

      The net future income tax liability is comprised of:
      As at December 31                                                                                                                           2010              2009
      Future Tax Liabilities
          Property, plant and equipment in excess of tax values                                                                              $       77      $          –
          Timing of partnership items                                                                                                                 –	     	         78
          Risk management                                                                                                                           374                75

      Future Tax Assets
          Tax values of property, plant and equipment in excess of carrying amounts                                                                   –	     	       (802)
          Non-capital and net operating losses carried forward                                                                                     (285)             (174)
          Other                                                                                                                                      47	     	          (6)
      Net Future Income Tax Liability                                                                                                        $      213	     $	      (829)


      F) OthER COMPREhENSIVE INCOME
      The U.S. GAAP standard for retirement benefits requires the funded status of defined benefit and post-employment plans to be presented on the balance
      sheet and changes in the funded status be recorded through comprehensive income. In 2010, a loss of $2.1 million, net of tax, was recognized in OCI
      (2009	–	$12.5	million	gain,	net	of	tax,	as	noted	in	D	i).	On	adoption	of	the	standard,	as	required,	the	transitional	amount	of	$48	million,	net	of	tax	was	
      booked directly to AOCI.

      The foreign currency translation adjustment includes the effect of the accumulated U.S. GAAP differences.




124   Encana Corporation / Annual Report 2010
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G) FOREIGN CURRENCy tRANSLAtION
In 2010, in accordance with Canadian GAAP, the Company recognized a foreign exchange loss arising from the translation of an intercompany transaction that
reduced the Company’s net investment in a self-sustaining foreign operation. Under U.S. GAAP, intra-entity foreign currency transactions that are of a long-term
investment nature between entities that are consolidated in the Company’s financial statements are not included in determining net earnings but reported as
translation	adjustments.	Accordingly,	net	earnings	under	U.S.	GAAP	increased	by	$35	million	(2009	–	$128	million)	with	a	corresponding	decrease	to	foreign	
currency translation.

h) CURRENt ASSEtS
In	2009,	the	Company	reversed	an	impairment	of	inventory	previously	recorded	in	2008	under	Canadian	GAAP.	U.S.	GAAP	does	not	permit	the	reversal	
of inventory impairments. Accordingly, net earnings before income tax under U.S. GAAP decreased by $47 million with a corresponding decrease to the
inventory balance.

I) CONSOLIDAtED StAtEMENt OF CASh FLOwS
Certain items presented as investing or financing activities under Canadian GAAP are required to be presented as operating activities under U.S. GAAP.
Cash tax on sale of assets presented as investing activities under Canadian GAAP is presented as operating activities under U.S. GAAP.

J) DIVIDENDS DECLARED ON COMMON StOCk
For the years ended December 31                                                                                            2010	     	    2009	      	      2008
Dividends per share                                                                                                   $     0.80	    $	    1.40	     $	      1.60




                                                                                                                             Annual Report 2010 / Encana Corporation 125
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                          suppleMenTal inFormation
                          For the period ended December 31, 2010 (U.S. Dollars / U.S. Protocol) (unaudited)



      SUPPLEMENtAL FINANCIAL INFORMAtION (unaudited)
      Financial Results
                                                                                                           2010                                                      2009 (1)
      ($ millions, except per share amounts)                                      Year        Q4            Q3        Q2        Q1              Year        Q4          Q3         Q2         Q1
      Encana Results
      Cash Flow (2)                                                             4,439        917		       	1,132		 	1,217		 	1,173		         		5,021		     	930		 	1,274		 	1,430		 	1,387	
          Per share – Diluted                                                    6.00       1.25		        	1.54		 	1.65		 	1.57		             		6.68		   	1.24		 	1.70		 	1.90		 	1.85	
      Net Earnings (Loss)                                                       1,499        (42)	         	569		 	(505)	 	1,477		             		749		    	233		     (53)	   	92		 	477	
          Per share – Diluted                                                    2.03      (0.06)	        	0.77		 	(0.68)	 	1.97		             	1.00		   	0.31		 	(0.07)	 	0.12		 	0.63	
      Operating Earnings (3)                                                      665         68		          	98		    	81		 	418		            	1,767		     	373		 	378		 	472		 	544	
          Per share – Diluted                                                    0.90       0.09		        	0.13		 	0.11		 	0.56		              	2.35		   	0.50		 	0.50		 	0.63		 	0.72	
      Effective Tax Rates using
          Net Earnings                                                         27.2%                                                         13.0%
          Canadian Statutory Rate                                              28.2%                                                         29.2%
      Foreign Exchange Rates (US$ per C$1)
          Average                                                               0.971     0.987		 	0.962		 	0.973		 	0.961		                 	0.876		 	0.947		 	0.911		 	0.857		 	0.803	
          Period end                                                            1.005     1.005		 	0.971		 	0.943		 	0.985		                 	0.956		 	0.956		 	0.933		 	0.860		 	0.794	
      Cash Flow Summary
      Cash From (Used in) Operating Activities                                  2,365        919		 	1,325		         	893		    	(772)	       		5,041		 	1,061		 	1,415		 	1,121		 	1,444	
      Deduct (Add back):
         Net change in other assets and liabilities                                (84)            1		     	(16)	    	(38)	    	(31)	             38		        (5)	      13		       13		       17	
         Net change in non-cash working capital
           from continuing operations                                          (1,990)             1		    	209		    	(286)	 	(1,914)	           	(18)	     136		     	128		      (322)	       40	
      Cash Flow          (2)
                                                                                4,439        917		 	1,132		 	1,217		 	1,173		                	5,021		      930		 1,274		 1,430		 1,387	
      Operating Earnings Summary
      Net Earnings (Loss)                                                       1,499        (42)	        	569		    	(505)	 	1,477		          		749		     	233		      	(53)	      	92		     	477	
      Deduct (Add back):
          Unrealized hedging gain (loss), after tax                                634      (269)	        	331		    	(340)	   	912		         (1,352)	     (135)	      (685)	     (570)	       38	
          Non-operating foreign exchange gain (loss), after tax                    200       159 	        	140		    	(246)	   	147		            334		        (5)	      254		      190		     (105)
      Operating Earnings (3)                                                       665        68		          	98		     	81		   	418		          1,767		      373		      378		       472		      544	

      (1) 2009 reflects pro forma results.
      (2) Cash Flow is a non-GAAP measure defined as Cash from Operating Activities excluding net change in other assets and liabilities, net change in non-cash working capital from continuing
          operations and net change in non-cash working capital from discontinued operations, which are defined on the Consolidated Statement of Cash Flows and the Pro Forma Consolidated
          Statement of Cash from Operating Activities.
      (3) Operating Earnings is a non-GAAP measure defined as Net Earnings excluding the after-tax gain/loss on discontinuance, after-tax effect of unrealized hedging gains/losses on derivative
          instruments, after-tax gains/losses on translation of U.S. dollar denominated debt issued from Canada, after-tax foreign exchange gains/losses on settlement of intercompany transactions,
          future income tax on foreign exchange recognized for tax purposes only related to U.S. dollar intercompany debt and the effect of changes in statutory income tax rates.


                                                                                 2010                                                         2009
                                                                                  Year                                                          Year

      Financial Metrics
      Debt to Capitalization (1)                                                  31%                                                          32%
      Debt to Adjusted EBITDA (1, 2)                                              1.4x                                                         2.1x
      Return on Capital Employed (1, 2)                                            8%                                                           4%
      Return on Common Equity (2)                                                  9%                                                           5%

      (1) Calculated using debt defined as the current and long-term portions of long-term debt.
      (2) Calculated on a trailing twelve-month basis. 2009 reflects pro forma results.




126   Encana Corporation / Annual Report 2010
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SUPPLEMENtAL FINANCIAL & OPERAtING INFORMAtION (unaudited)
Net Capital Investment
                                                                                        2010                                                  2009 (1)
($ millions)                                                         Year       Q4        Q3        Q2        Q1         Year        Q4          Q3        Q2           Q1
Capital Investment
   Canadian Division                                                2,211     649 	     	529		     	490		    	543		   		1,869		     	575		     	432		     	325		     	537	
   USA Division                                                     2,499     750		     	681		     	596		    	472		    	1,821		     	515		     	358		     	374		     	574	
                                                                    4,710    1,399		 	1,210		 	1,086		 	1,015		        	3,690		 	1,090		       	790		     	699		 	1,111	
    Market Optimization                                                 2        1        –        1        –                –       –            –          1       (1)
    Corporate & Other                                                  61       27		    	17		    	12		     	5		           		65		   	37		         	4		      	13		    	11	
Capital Investment                                                  4,773    1,427     1,227      1,099     1,020      3,755       1,127       794        713       1,121
Acquisitions
    Property
        Canadian Division                                             592     358 	     	175		      	46		     	13		     		190		     	108		        	8		      	1		       	73	
        USA Division                                                  141      34		      	14		      	78		     	15		       		46		     	25		        	7		      	8		        	6	
    Corporate
        Canadian Division (2)                                           –        –         –          –         –          24          –          –         24             –
Divestitures
    Property
        Canadian Division                                            (288)     (88)     (171)        (20)       (9)   (1,000)        (43)      (913)       (11)        (33)
        USA Division                                                 (595)    (221)	     	(49)	   	(188)	   	(137)	     		(73)	       	(3)	     	(66)	      	(4)	        –	
        Corporate & Other                                               –        –          –          –         –          (2)         –          –         (2)         –
Net Acquisitions and Divestitures                                    (150)      83		    	(31)	     	(84)	   	(118)	    	(815)	       	87		    	(964)	      	16		       	46	
Net Capital Investment                                              4,623    1,510		 	1,196		 	1,015		       	902		   		2,940		 	1,214		      	(170)	     	729		 	1,167	

(1) 2009 reflects pro forma results.
(2) Acquisition of Kerogen Resources Canada, ULC on May 5, 2009.


Production Volumes – After Royalties
                                                                                        2010                                                  2009 (1)
                                                                     Year       Q4        Q3        Q2        Q1         Year        Q4          Q3        Q2           Q1
Produced Gas (MMcf/d)
   Canadian Division                                                1,323    1,395		 	1,390		 	1,327		 	1,177		       		1,224		 	1,071		 	1,201		 	1,343		 	1,281	
   USA Division                                                     1,861    1,835		 	1,791		 	1,875		 	1,946		       		1,616		 	1,616		 	1,524		 	1,581		 	1,746
                                                                    3,184    3,230	    3,181	     3,202	    3,123	     2,840	      2,687	     2,725	     2,924	     3,027	
Liquids (bbls/d)
    Canadian Division                                              13,149 11,327			14,262			13,462			13,558		          15,880			12,477			15,909			17,624			17,567	
    USA Division                                                    9,638 9,206 	 	9,142			10,112			10,108		          	11,317			11,586			10,325			11,699			11,671	
                                                                   22,787 20,533 		23,404			23,574			23,666		         27,197			24,063			26,234			29,323			29,238	
Total (MMcfe/d)
    Canadian Division                                               1,402    1,463		 	1,476		 	1,408		 	1,258		         1,319		 	1,145		 	1,297		 	1,449		 	1,387	
    USA Division                                                    1,919    1,890		 	1,846		 	1,936		 	2,007		        	1,684		 	1,686		 	1,586		 	1,651		 	1,816	
                                                                    3,321    3,353		 	3,322		 	3,344		 	3,265		       		3,003		 	2,831		 	2,883		 	3,100		 	3,203	

(1) 2009 reflects pro forma results.




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      SUPPLEMENtAL OIL AND GAS OPERAtING StAtIStICS (unaudited)
      Operating Statistics – After Royalties
      Per-unit Results                                                      2010                                              2009 (1)
      (excluding impact of realized financial hedging)    Year      Q4       Q3        Q2        Q1        Year       Q4        Q3         Q2        Q1
      Produced Gas – Canadian Division ($/Mcf)
          Price                                           4.10    3.73		 	3.69		 	3.92		 	5.21		          	3.71		 	4.21		 	2.92		 	3.19		          	4.58	
          Production and mineral taxes                    0.01       –    0.02    0.02    0.01             0.03       –    0.02    0.04             0.03
          Transportation                                  0.40    0.40 	 	0.39		 	0.38		 	0.41		          	0.33		 	0.40		 	0.35		 	0.30		          	0.30	
          Operating                                       1.09    1.21 	 	0.96		 	1.01		 	1.20		          	1.13		 	1.43		 	1.09		 	1.02		          	1.04	
               Netback                                    2.60    2.12 	   	2.32		   	2.51		   	3.59		    	2.22		   	2.38		   	1.46		    	1.83		   	3.21	
      Produced Gas – USA Division ($/Mcf)
          Price                                           4.73    4.08 	 	4.57		 	4.45		 	5.78		          	3.75		 	4.64		 	3.41		 	3.01		          	3.88	
          Production and mineral taxes                    0.27    0.24 	 	0.25		 	0.25		 	0.35		          	0.17		 	0.23		 	0.08		 	0.08		          	0.27	
          Transportation                                  0.97    0.98 	 	1.00		 	0.97		 	0.95		          	0.90		 	0.96		 	0.99		 	0.87		          	0.78	
          Operating                                       0.58    0.59 	 	0.62		 	0.62		 	0.48		          	0.55		 	0.61		 	0.56		 	0.54		          	0.51	
               Netback                                    2.91    2.27 	   	2.70		   	2.61		   	4.00		    	2.13		   	2.84		   	1.78		    	1.52		   	2.32	
      Produced Gas – Total ($/Mcf)
          Price                                           4.47    3.93		 	4.19		 	4.23		 	5.56		          	3.73		 	4.47		 	3.19		 	3.09		          	4.18	
          Production and mineral taxes                    0.16    0.13 	 	0.15		 	0.15		 	0.22		          	0.11		 	0.14		 	0.06		 	0.06		          	0.17	
          Transportation                                  0.73    0.73 	 	0.74		 	0.73		 	0.74		          	0.66		 	0.74		 	0.71		 	0.61		          	0.58	
          Operating                                       0.79    0.86		 	0.77		 	0.78		 	0.75		          	0.80		 	0.93		 	0.79		 	0.76		          	0.74	
               Netback                                    2.79    2.21		   	2.53		   	2.57		   	3.85		    	2.16		   	2.66		   	1.63		    	1.66		   	2.69	
      Liquids – Canadian Division ($/bbl)
           Price                                         64.79   69.24 	 	59.44		 	63.80		 	67.71		      	47.86		 	60.37		 	52.48		 	45.86		 	36.51	
           Production and mineral taxes                   0.44    0.51		 	0.37		 	0.53		 	0.35		          	0.45		 	0.34		 	0.48		 	0.47		 	0.47	
          Transportation                                  0.82    0.69 	 	0.93		 	1.10		 	0.53		          	1.06		 	0.49		 	1.41		 	0.62		 	1.61	
          Operating                                       3.24    4.03		 	2.27		 	2.22		 	4.67		          	3.62		 	3.25		 	3.04		 	4.09		 	3.94	
               Netback                                   60.29   64.01		 	55.87		 	59.95		 	62.16		      42.73		 	56.29		 	47.55		 	40.68		 	30.49	
      Liquids – USA Division ($/bbl)
           Price                                         69.35   73.27		 	66.38		 	70.62		 	67.18		      	48.56		 	64.39		 	55.60		 	47.27		 	27.43	
           Production and mineral taxes                   6.69    7.43		 	6.42		 	6.68		 	6.25		          	4.39		 	5.84		 	5.12		 	4.18		 	2.48	
          Transportation                                     –       –        –        –        –             –        –        –        –        –
               Netback                                   62.66   65.84 	 	59.96		 	63.94		 	60.93		      	44.17		 	58.55		 	50.48		 	43.09		 	24.95	
      Total Liquids ($/bbl)
           Price                                         66.72   71.05		 	62.15		 	66.73		 	67.48		      	48.15		 	62.31		 	53.71		 	46.42		 	32.88	
           Production and mineral taxes                   3.08    3.61		 	2.74		 	3.17		 	2.87		          	2.09		 	2.99		 	2.31		 	1.95		 	1.27	
           Transportation                                 0.47    0.38		 	0.57		 	0.63		 	0.30		          	0.62		 	0.26		 	0.85		 	0.38		 	0.96	
           Operating                                      1.87    2.22		 	1.38		 	1.26		 	2.67		          	2.11		 	1.68		 	1.84		 	2.46		 	2.37	
               Netback                                   61.30   64.84		 	57.46		 	61.67		 	61.64		      	43.33		 	57.38		 	48.71		 	41.63		 	28.28

      (1) 2009 results reflect pro forma results.

      (continued on next page)




128   Encana Corporation / Annual Report 2010
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SUPPLEMENtAL OIL AND GAS OPERAtING StAtIStICS (unaudited) (continued)
Operating Statistics – After Royalties
Per-unit Results                                                                                  2010                                                 2009 (1)
(excluding impact of realized financial hedging)                           Year          Q4         Q3          Q2        Q1       Year        Q4        Q3         Q2         Q1
Total Netback – Canadian Division ($/Mcfe)
     Price                                                                 4.47       4.10 	     	4.05		      	4.30		   	5.60		   	4.02		    	4.59		   	3.36		    	3.51		   	4.70	
     Production and mineral taxes                                          0.02          –        0.02         0.03      0.01      0.03       0.01      0.02       0.04      0.04
    Transportation                                                         0.38       0.39 	     	0.38		      	0.37		   	0.39		   	0.32		    	0.38		   	0.34		    	0.28		   	0.30	
     Operating                                                             1.06       1.19        0.93         0.97      1.17      1.09       1.37      1.05       0.99      1.01
     Netback                                                               3.01       2.52		     	2.72		      	2.93		   	4.03		   	2.58		    	2.83		   	1.95		    	2.20		   	3.35	
Total Netback – USA Division ($/Mcfe)
     Price                                                                 4.94       4.32		 	4.76		 	4.68		 	5.94		              	3.92		 	4.89		 	3.64		 	3.21		           	3.91	
     Production and mineral taxes                                          0.30       0.27		 	0.27		 	0.28		 	0.38		              	0.19		 	0.26		 	0.11		 	0.10		           	0.28	
     Transportation                                                        0.95       0.95 	 	0.97		 	0.94		 	0.92		              	0.86		 	0.92		 	0.95		 	0.83		           	0.75	
     Operating                                                             0.56       0.58		 	0.61		 	0.60		 	0.46		              	0.53		 	0.58		 	0.54		 	0.52		           	0.49	
     Netback                                                               3.13       2.52		     	2.91		      	2.86		   	4.18		    2.34		    	3.13		   	2.04		    	1.76		   	2.39	
Total Netback ($/Mcfe)
     Price                                                                 4.74       4.22		     	4.45		      	4.52		   	5.81		   	3.96		    	4.77		   	3.51		    	3.35		   	4.25	
     Production and mineral taxes                                          0.18       0.15 	     	0.16		      	0.17		   	0.23		   	0.12		    	0.16		   	0.07		    	0.08		   	0.17	
     Transportation                                                        0.71       0.70 	     	0.71		      	0.70		   	0.71		   	0.63		    	0.70		   	0.68		    	0.58		   	0.56	
     Operating (2)                                                         0.77       0.84		     	0.75		      	0.76		   	0.74		   	0.78		    	0.90		   	0.76		    	0.74		   	0.72	
     Netback                                                               3.08       2.53 	     	2.83		      	2.89		   	4.13		   	2.43		    	3.01		   	2.00		    	1.95		   	2.80	

(1) 2009 results reflect pro forma results.
(2) 2010 operating costs include costs related to long-term incentives of nil (2009 - costs of $0.03/Mcfe).


Impact of Realized Financial Hedging                                                              2010                                                 2009 (1)
                                                                           Year          Q4         Q3          Q2        Q1       Year        Q4        Q3         Q2         Q1
Natural Gas ($/Mcf)                                                        1.01        1.10 	 	1.08		         	1.27		 	0.58		      	3.30		   	1.97		   	4.25		    	3.93		 	3.04	
Liquids ($/bbl)                                                           (0.60)      (2.14)	 	(0.36)	        	0.32		 	(0.41)	    	(0.01)	       –	        –	         –		 	(0.03)
Total ($/Mcfe)                                                             0.97        1.05 	 	1.04		         	1.22		 	0.55		      	3.12		   	1.87		   	4.02		    	3.70		 	2.87	
Canadian Division ($/Mcfe)                                                 0.93       1.02 	     	0.94		      	1.16		   	0.55		   	2.93		    	1.91		   	3.84		    	3.29		   	2.56	
USA Division ($/Mcfe)                                                      1.00       1.07		     	1.11		      	1.27		   	0.55		   	3.27		    	1.84		   	4.16		    	4.07		   	3.11	
Total ($/Mcfe)                                                             0.97       1.05		     	1.04		      	1.22		   	0.55		   	3.12		    	1.87		   	4.02		    	3.70		   	2.87	

(1) 2009 results reflects pro forma result.




                                                                                                                                             Annual Report 2010 / Encana Corporation 129
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      SUPPLEMENtAL FINANCIAL INFORMAtION
      The following financial information presents selected consolidated financial and operating information related to the ongoing operations of Encana Corporation
      (“Encana”) for the three and twelve months ended December 31, 2010 compared to historical pro forma financial and operating information for the three
      and twelve months ended December 31, 2009. The pro forma comparative information excludes the results of operations from assets transferred to Cenovus
      Energy Inc. on November 30, 2009; See Note 3 to the December 31, 2009 annual Consolidated Financial Statements.

      The financial and operating information for the three and twelve months ended December 31, 2010 can be found in Encana’s interim Consolidated Financial
      Statements for the period ended December 31, 2010. The pro forma financial and operating information for the twelve months ended December 31, 2009
      can be found in Encana’s unaudited Pro Forma Financial Information as posted on www.encana.com and on the following page.


      CONSOLIDAtED StAtEMENt OF EARNINGS (unaudited)                                                       Three Months Ended                    Twelve Months Ended
                                                                                                              December 31,                          December 31,
                                                                                                                     Pro Forma                             Pro Forma
      ($ millions, except per share amounts)                                                              2010           2009                    2010          2009
      Revenues, Net of Royalties                                                                      $ 1,431	       $		 1,786		            $ 8,870 	      	$		6,732	
      Expenses
         Production and mineral taxes                                                                        47               41                   217               132
         Transportation                                                                                     217		    	       182		          		     859 	   	         684	
         Operating                                                                                          283              272                 1,061		   	       1,008	
         Purchased product                                                                                  179 	    	       185		          	      739 	   	         820	
         Depreciation, depletion and amortization                                                           818		    	       708		               3,242             2,770
         Administrative                                                                                      98 	    	        96		          	      359               359
         Interest, net                                                                                      121 	    	       126		          	      501               371
         Accretion of asset retirement obligation                                                            11               10                    46                37
         Foreign exchange (gain) loss, net                                                                 (184)               1                  (216)             (312)
         (Gain) loss on divestitures                                                                          3                1                     2                 2
                                                                                                          1,593 	    		 1,622		             	    6,810 	   		 5,871	
      Net Earnings (Loss) Before Income Tax                                                                (162)	    	       164		               2,060 	   	         861	
         Income tax expense (recovery)                                                                     (120)	    		       (69)	         		     561               112
      Net Earnings (Loss)                                                                             $     (42)         $   233            $ 1,499            $     749
      Net Earnings (Loss) per Common Share
         Basic                                                                                        $   (0.06)         $   0.31           $     2.03         $    1.00
         Diluted                                                                                      $   (0.06)         $   0.31           $     2.03         $    1.00


      CONSOLIDAtED StAtEMENt OF CASh FROM OPERAtING ACtIVItIES (unaudited)                                 Three Months Ended                    Twelve Months Ended
                                                                                                              December 31,                          December 31,
                                                                                                                     Pro Forma                             Pro Forma
      ($ millions)                                                                                        2010           2009                    2010          2009
      Operating Activities
         Net earnings (loss)                                                                          $     (42)         $    233           $ 1,499            $     749
         Depreciation, depletion and amortization                                                           818 	    	        708		         	 3,242                2,770
         Future income taxes                                                                                (95)             (279)                774 	    	        (438)
         Unrealized (gain) loss on risk management                                                          398               199                (945)	    	       2,066	
         Unrealized foreign exchange (gain) loss                                                           (191)	    	       (148)	         		 (278)	      	        (508)
         Accretion of asset retirement obligation                                                            11                10                  46                  37
         (Gain) loss on divestitures                                                                          3                  1                  2                   2
         Other                                                                                               15		    	        206		         	      99                343
         Net change in other assets and liabilities                                                           1                 (5)               (84)	    	           38	
         Net change in non-cash working capital from continuing operations                                    1		    	        136		         		 (1,990)	    	          (18)
      Cash From Operating Activities                                                                  $     919 	    	$		1,061		            $ 2,365            $ 5,041

130   Encana Corporation / Annual Report 2010
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SUPPLEMENtAL FINANCIAL INFORMAtION
The following Pro Forma Information presents selected historical pro forma financial and operating information related to the ongoing operations of Encana.
The information excludes the results of operations from assets transferred to Cenovus Energy Inc. on November 30, 2009; See Note 3 to the December 31, 2009
annual Consolidated Financial Statements.

For background on the pro forma information please refer to Note 1 – Basis of Presentation in the Notes to Encana Pro Forma Consolidated Statements of
Earnings and Cash from Operating Activities.


PRO FORMA CONSOLIDAtED StAtEMENt OF EARNINGS (unaudited)

For the twelve months ended December 31, 2009
                                                                                               Deduct         Add/(Deduct)
                                                                             Encana           Cenovus           Pro Forma                                   Encana
($ millions, except per share amounts)                                  Consolidated         Carve-out        Adjustments              Note 2            Pro Forma
Revenues, Net of Royalties	                                               $	 11,114	          $	 4,382	         $	        		                        	     $	 6,732	
Expenses
   Production and mineral taxes                                                   171               39                                                         132
	 Transportation	                                                         	    	1,280		       	   	596		        	         	                         	     	   	684	
	 Operating	                                                              	    	1,627		       	   	619		        	         	                         	     	 	1,008	
	 Purchased	product		                                                     	    	1,460		       	   	640		        	         	                         	     	   	820	
	 Depreciation,	depletion	and	amortization	                               	    	3,704		       	 	1,052		        	    	118		                 	(A)             2,770
	 Administrative	                                                         	      	477		       	   	108		        	     	41		                  (B)               359
                                                                                                                       (51)                  (C)
    Interest, net                                                                405                34                                                          371
    Accretion of asset retirement obligation                                       71               34                                                           37
    Foreign exchange (gain) loss, net                                             (22)             290                                                         (312)
    (Gain) loss on divestitures                                                     2                –                                                            2
Net Earnings Before Income Tax	                                           	 	1,939		          	    	970		       	    	(108)	                        	           861	
	 Income	tax	expense	                                                     		  	109		          		   	393		       		    	396		     	(D i,ii,iii,iv)               112
Net Earnings from Continuing Operations	                                  		   1,830		        	    	577		       	    	(504)	                        	           749
Net Earnings from Discontinued Operations                                         32                 32                  –                                        –
Net Earnings	                                                             $	 1,862	           $	   609	         $	   (504)	                         	     $	    749
Net Earnings from Continuing Operations per Common Share                                                                                     (E)
   Basic                                                                  $      2.44                                                                     $    1.00
   Diluted                                                                $      2.44                                                                     $    1.00
Net Earnings per Common Share                                                                                                                (E)
	 Basic	                                                                  $	     2.48		       		         	      	         	                         	     $	   1.00	
	 Diluted	                                                                $	     2.48		       		         		     		        		                        		    $	   1.00	




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      PRO FORMA CONSOLIDAtED StAtEMENt OF CASh FROM OPERAtING ACtIVItIES (unaudited)

      For the twelve months ended December 31, 2009
                                                                                                  Deduct     Add/(Deduct)
                                                                                    Encana       Cenovus       Pro Forma                               Encana
      ($ millions)                                                             Consolidated     Carve-out    Adjustments          Note 2            Pro Forma
      Operating Activities
      	 Net	earnings	from	continuing	operations	                                 $	 1,830	      $	 577		       $	   (504)	                     		    $	     749	
      	 Depreciation,	depletion	and	amortization	                                	 	3,704		     	 	1,052		     	    	118		              (A)               2,770
      	 Future	income	taxes	                                                     	 	(1,799)	    	 	(501)	      	    	860		   (D i,ii,iii,iv)              	(438)
      	 Unrealized	(gain)	loss	on	risk	management	                               	 	2,680		     	   	614		     	        	                      	     	    2,066	
      	 Unrealized	foreign	exchange	(gain)	loss	                                 	    	(231)	   	   	277		     	        	                      	     	    	(508)
         Accretion of asset retirement obligation                                         71           34                                                     37
         (Gain) loss on divestitures                                                       2            –                                                      2
         Other                                                                          373            30                                                   343
         Cash flow from discontinued operations                                         149          149                                                       –
         Net change in other assets and liabilities                                       23          (15)                                                    38
         Net change in non-cash working capital from continuing operations               (29)         (11)                                                  	(18)
         Net change in non-cash working capital from discontinued operations         1,100         1,100                                                       –
      Cash From Operating Activities	                                            $	 7,873		     $	 3,306		     $	   474		                      		    $	 5,041




132   Encana Corporation / Annual Report 2010
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NOtES tO PRO FORMA CONSOLIDAtED StAtEMENtS OF EARNINGS AND CASh FROM OPERAtING ACtIVItIES (unaudited)

1. basis oF presentation

On November 30, 2009, Encana completed a corporate reorganization (the “Split Transaction”) involving the division of Encana into two independent publicly
traded energy companies – Encana and Cenovus Energy Inc. The unaudited Pro Forma Consolidated Statement of Earnings and Pro Forma Consolidated
Statement	of	Cash	from	Operating	Activities	have	been	prepared	for	information	purposes	and	assumes	the	Split	Transaction	occurred	on	January	1,	2008.	
Pro forma adjustments are detailed in Note 2.

The unaudited Pro Forma Consolidated Statement of Earnings and Pro Forma Consolidated Statement of Cash from Operating Activities are expressed in United
States dollars and have been prepared for information purposes using information contained in the following:

   a) Encana’s audited Consolidated Financial Statements for the year ended December 31, 2009.

   b) Cenovus Energy unaudited Carve-out Consolidated Financial Statements for the 11 months ended November 30, 2009. The Cenovus unaudited Carve-out
      Consolidated Financial Statements were derived from the accounting records of Encana on a carve-out basis.

In the opinion of Management of Encana, the unaudited Pro Forma Consolidated Financial Statements include all the adjustments necessary for fair presentation
in accordance with Canadian generally accepted accounting principles.

The unaudited Pro Forma Statement of Earnings and Pro Forma Consolidated Statement of Cash from Operating Activities are for illustrative purposes only and
may not be indicative of the results that actually would have occurred if the Split Transaction had been in effect on the dates indicated or of the results that may
be obtained in the future. In addition to the pro forma adjustments to the historical carve-out financial statements, various other factors will have an effect on
the results of operations.

2. pro Forma assumptions anD aDjustments

The following adjustments reflect expected changes to Encana’s historical results which would arise from the Split Transaction.

A. Reflects the expected difference in depreciation, depletion and amortization expense arising from a change in the depletion rate calculated for Encana’s
   Canadian cost centre.

B. Increases administrative expense for additional compensation costs arising from the separation of compensation plans and the estimated increase in
   the number of employees required to operate Encana as a separate entity, after removing those costs associated with Cenovus’s employees.

C. Reduces administrative expense to remove Encana’s share of the transaction costs incurred related to the Split Transaction.

D. Pro forma adjustments to income tax expense,
   i. adjustments for the tax effect of items A, B and C above;
   ii. adjustments for the effect of the loss of tax deferrals resulting from the wind up of Encana’s Canadian upstream oil and gas partnership;
   iii. acceleration of the intangible drilling costs deduction in the U.S. as a result of a change in the status of Encana being considered an independent
        producer; and
   iv. remove tax benefits solely resulting from the Split Transaction.

E. The Pro Forma Net Earnings per Common Share is calculated using the same weighted average number of pre-Arrangement Encana Corporation Common
   Shares outstanding as at December 31, 2009.
                                                                                                            For the three             For the twelve
                                                                                                          months ended               months ended
   (millions)                                                                                       December 31, 2009           December 31, 2009
   Weighted Average Common Shares Outstanding - Basic                                                                         751.3                           751.0
   Effects of Stock Options and Other Dilutive Securities                                                                       0.1                             0.4
   Weighted Average Common Shares Outstanding - Diluted                                                                       751.4                           751.4




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      SUPPLEMENtAL FINANCIAL INFORMAtION (unaudited)
      Pro Forma Reconciliations

      ($ millions, except per share amounts)                                                                                                                          2009
                                                                                                                                               Year         Q4          Q3         Q2         Q1
      Cash Flow          (1)

      	 Encana	Corporation,	Consolidated	   		                                                                                                6,779		     	603		 	2,079		 	2,153		 	1,944	
         Less: Cenovus Carve-out (2)                                                                                                          2,232 	       (15)	 	841		 	811		 	595	
         Add/(Deduct) Pro Forma adjustments                                                                                                     474		     	312		    	36		    	88		    	38	
             Encana Pro Forma                                                                                                                 5,021 	     	930		 	1,274		 	1,430		 	1,387	
             Per share amounts
      	      	 Encana	Corporation,	Consolidated	 –	Basic	                                                                                     	9.03		    	0.80		     	2.77		    	2.87		    	2.59	
                                                 – Diluted                                                                                     9.02 	    	0.80		     	2.77		    	2.87		    	2.59	
      	      	 Encana	Pro	Forma	                 –	Basic	                                                                                     	6.69		    	1.24		     	1.70		    	1.90		    	1.85	
      	      	 	                                 –	Diluted	                                                                                   	6.68		    	1.24		     	1.70		    	1.90		    	1.85	
      Net Earnings
      	 Encana	Corporation,	Consolidated	   			                                                                                               1,862		      	636		      	25		     	239		     	962	
         Less: Cenovus Carve-out (2)                                                                                                            609 	       	(15)	     	63		     	149		     	412	
         Add/(Deduct) Pro Forma adjustments                                                                                                    (504)	     	(418)	     	(15)	       	2		      	(73)
             Encana Pro Forma                                                                                                                   749        233         (53)        92        477
             Per share amounts
      	      	 Encana	Corporation,	Consolidated	 –	Basic	                                                                                     	2.48		    	0.85		 	0.03		        	0.32		    	1.28	
                                                 – Diluted                                                                                     2.48		    	0.85		 	0.03		        	0.32		    	1.28	
                 Encana Pro Forma                – Basic                                                                                       1.00 	    	0.31		 	(0.07)	       	0.12		    	0.64	
                                                 – Diluted                                                                                     1.00 	    	0.31		 	(0.07)	       	0.12		    	0.63	
      Operating Earnings (3)
      	 Encana	Corporation,	Consolidated	   		                                                                                               	3,495		      	855		     	775		     	917		     	948	
         Less: Cenovus Carve-out (2)	       		                                                                                                1,224		        64		     	382		     	447		     	331	
         Add/(Deduct) Pro Forma adjustments                                                                                                    (504)	     	(418)	      	(15)	      	2		      	(73)
             Encana Pro Forma                                                                                                                 1,767		     	373		      	378		     	472		     	544	
             Per share amounts
      	      	 Encana	Corporation,	Consolidated	 –	Diluted	                                                                                   	4.65		    	1.14		     	1.03		    	1.22		    	1.26	
      	      	 Encana	Pro	Forma	                 –	Diluted	                                                                                   	2.35		    	0.50		     	0.50		    	0.63		    	0.72	

      (1) Cash Flow is a non-GAAP measure defined as Cash from Operating Activities excluding net change in other assets and liabilities, net change in non-cash working capital from continuing
          operations and net change in non-cash working capital from discontinued operations, which are defined on the Consolidated Statement of Cash Flows and the Pro Forma Consolidated
          Statement of Cash from Operating Activities.
      (2) Cenovus Energy was spun-off on November 30, 2009. As a result, carve-out information for the fourth quarter is for the two months ended November 30, 2009 and the 2009 Year
          information is for the 11 months ended November 30, 2009.
      (3) Operating Earnings is a non-GAAP measure defined as Net Earnings excluding the after-tax gain/loss on discontinuance, after-tax effect of unrealized hedging gains/losses on derivative
          instruments, after-tax gains/losses on translation of U.S. dollar denominated debt issued from Canada, after-tax foreign exchange gains/losses on settlement of intercompany transactions,
          future income tax on foreign exchange recognized for tax purposes only related to U.S. dollar intercompany debt and the effect of changes in statutory income tax rates.




134   Encana Corporation / Annual Report 2010
                                                                              take a closer look

                                               endnotes and
                                                abbreviations
                                                                        / 2010 annual report




                        thE natuRal gas EcOnOmy                          abbREviatiOns
Vol / two Issue / one
www.encana.com
                        / mEEting thE nEEd fOR                           bbls       barrels
                        clEanER fuEl: PagEs 30 - 36                      bbls/d     barrels per day
                        1.   Potential gas committee (Pgc)               bOE        barrels of oil equivalent
                        2.   ihs global insight – september 2009         bcf        billion cubic feet
                             – the contributions of the natural gas
                                                                         bcf/d      billion cubic feet per day
                             industry to the u.s. national and state
                             economies. approximately 50,000 jobs        bcfe       billion cubic feet equivalent
                             are added per Bcf/d, and a 1 percent        bcfe/d     billion cubic feet equivalent per day
                             increase is about 0.7 Bcf/d =               cbm        coalbed methane
                             35,000 jobs                                 cng        compressed natural gas
                        3.   encana calculation (25 Bcf/d =              cO2        carbon dioxide
                             approximately 1.6 billion barrels of oil    Ebitda     earnings before interest, taxes,
                             x $100/barrel)
                                                                                    depreciation and amortization
                        4.   http://www.usgasvehicles.com/news_          lng        liquefied natural gas
                             detalle.php?id=778
                                                                         lPg        liquid petroleum gas
                        5.   http://www.ngvglobal.com/page/4             mbbls      thousand barrels
                        6.   http://www.ngvglobal.com/page/5             mbbls/d    thousand barrels per day
                        7.   http://www.ngvglobal.com/page/7             mmbbls     million barrels
                        8.   http://green.blogs.nytimes.                 mmbbls/d million barrels per day
                             com/2011/02/22/u-p-s-finds-a-               mcf        thousand cubic feet
                             substitute-for-diesel-natural-gas-at-
                                                                         mcfe       thousand cubic feet equivalent
                             260-degrees-below-zero/?smid=tw-
                             nytimes&seid=auto&sf1103838=1               mm         million
                                                                         mmcf       million cubic feet
                        9.   encana estimate
                                                                         mmcf/d     million cubic feet per day
                        10. natural gas vehicles for america
                            (ngva) http://www.ngvc.org/mktplace/         mmcfe      million cubic feet equivalent
                            fact.html                                    mmcfe/d million cubic feet equivalent
                                                                                 per day
                        11. ngva http://www.ngvc.org/mktplace/
                            fact.html                                    ngl        natural gas liquids
                                                                         nOx        nitrogen oxides
                        12. westport innovations http://
                            www.westport.com/media/news-                 sO2        sulphur dioxide
                            release?story=423%7cwestport-                tcf        trillion cubic feet
                            announces-robert-transport-order-180-        tcfe       trillion cubic feet equivalent
                            peterbilt-lng-truc
                                                                         /d         per day
                        13. http://www.xcelenergy.com/
                            sitecollectiondocuments/docs/10-07-
                            427_cleanaircleanJobs-finalfacts.pdf
                        14. environnent canada http://www.ec.gc.
                            ca/default.asp?lang=en&n=714d9aae-
                            1&news=e5B59675-Be60-4759-
                            8fc3-d3513eaa841c
                        15. coal trader
                        16. http://www.reuters.com/
                            article/2010/11/10/transalta-
                            idusn1018310720101110
                        17. credit suisse – growth from
                            subtraction - september 2010



                                                                          Annual Report 2010 / encana corporation 135
    take a closer look

    corporate &
    investor information
        / to our shareholders




    tRansfER agEnts                             stOck ExchangEs                                  Encana wEbsitE
                                                                                                                                                  Vol / two Issue / one
    & REgistRaR                                 common shares (Eca)                              www.encana.com                                   www.encana.com
    common shares                               toronto stock exchange
                                                new york stock exchange                          encana’s website contains a variety
    ciBc mellon trust company
                                                                                                 of corporate and investor information,
    calgary, montreal & toronto
                                                                                                 including, among other information,
    Bny mellon shareowner services                                                               the following:
    jersey city, new jersey
                                                annual infORmatiOn                               •	 Current	stock	prices
    shareholders are encouraged to contact                                                       •	 Annual	and	Interim	Reports
                                                fORm (aif) (fORm 40-f)
    ciBc mellon trust company for information                                                    •	 Information	Circulars
    regarding security holdings.                encana’s aif is filed with the securities        •	 News	releases
                                                regulators in canada and the united              •	 Investor	presentations
    answerline: 416-643-5990                    states. under the multi-Jurisdictional           •	 Dividend	information
    toll-free (north america): 1-866-580-7145   disclosure system, encana’s aif is filed         •	 Dividend	reinvestment	plan
    facsimile: 416-643-5501                     as form 40-f with the u.s. securities            •	 Shareholder	support	information
    mailing address                             and exchange commission.                         •	 Corporate	Responsibility	information
    ciBc mellon trust company
                                                                                                 additional information, including
    p.o. box 7010
                                                                                                 copies of the encana corporation
    adelaide street postal station
                                                                                                 2010 annual report, may be obtained
    toronto, ontario, canada m5c 2w9            shaREhOldER                                      from encana corporation.
    internet address                            accOunt mattERs
    www.cibcmellon.com                          to change your address, transfer shares,
                                                eliminate duplicate mailings, have dividends
                                                deposited directly into accounts at financial    Encana cORPORatiOn
                                                institutions in canada that provide electronic
                                                                                                 investor relations & communications
    auditOR                                     fund-transfer services, etc., please contact
                                                                                                 1800, 855 - 2 street s.w., P.O. Box 2850
                                                ciBc mellon trust company.
    Pricewaterhousecoopers llP                                                                   calgary, alberta, canada t2P 2s5
    chartered accountants
                                                                                                 Phone: 403-645-3550
    calgary, alberta
                                                                                                 email: investor.relations@encana.com
                                                                                                 web: www.encana.com
                                                annual shaREhOldERs’
                                                mEEting                                          investor inquiries should be directed to:
    indEPEndEnt qualifiEd                       shareholders are invited to attend the           ryder mcritchie
    REsERvEs EvaluatORs                         annual shareholders’ meeting being held          vice-president, investor relations
                                                on wednesday, april 20, 2011 at 2 p.m.           Phone: 403-645-2007
    degolyer and macnaughton
                                                calgary time at:                                 email: ryder.mcritchie@encana.com
    dallas, texas
                                                calgary telus convention centre,                 lorna Klose
    glJ Petroleum consultants ltd.
                                                macleod hall, lower level, south Building,       manager, investor relations
    calgary, alberta
                                                120 - 9 avenue s.e., calgary, alberta,           Phone: 403-645-6977
    mcdaniel & associates consultants ltd.      canada                                           email: lorna.klose@encana.com
    calgary, alberta
                                                those unable to do so are asked to sign and      media inquiries should be directed to:
    netherland, sewell & associates, inc.       return the form of proxy mailed to them.
                                                                                                 alan Boras
    dallas, texas
                                                                                                 vice-president, media relations
                                                                                                 Phone: 403-645-4747
                                                                                                 email: alan.boras@encana.com




                                                                                                 designed and produced by foundry creative inc.




136 encana corporation / Annual Report 2010
Our development of bi-fuel systems in our northeastern British Columbia operations allows
equipment to run on diesel and natural gas simultaneously, resulting in significant reduction
in diesel fuel consumption, cost savings and greenhouse gas reductions. It’s good for the
environment and business. Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com
Ten miles southeast of Strathmore, Alberta, Encana’s Cavalier Natural Gas Power Station uses
50 percent less water than what a coal plant needs to produce the same amount of electricity.
Using specialized micro-filters, we’ve reduced the need to draw fresh river water by reusing
treated water from the plant’s cooling tower. Conserving resources while reducing emissions
is key to a sustainable energy future. Take a closer look. We are Encana.




Learn more about natural gas and Encana at www.encana.com and follow us on Twitter @encanacorp

				
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